I bet you think fractional reserve banking is a scam too 
Am I talking to a bunch of rubes that just fell off the turnip truck? Of course fractional reserve banking is a scam.
It is the natural state of affairs. You can't regulate what is natural. So nature is a scam?
Did you forget what the free market chose to do in the 1800s by preferring to use fractional receipts instead of trade physical gold.
What is natural can still be evil.
...
It is possible to eliminate what is both natural and evil it is just very hard. We will get rid of fractional reserve too someday. It is a much more subtle evil, however, so it might not happen for a long time.
I wrote a few posts on the basics of the fractional reserve system a while ago here:
Finance Part I: Understanding the Parasite
Finance Part II: The Parasitic Cycle
Finance Part III: Divide, Conquer, Enslave
I added some replies to CoinCube's 3 threads he linked to above.
Fractional reserve banking was natural when gold was what the public CONFIDENCE wanted as money in the early 1800s, because society demands liquidity and so to get liquidity, the banks were forced to issue paper receipts for the gold.
But I want to note a key distinction in that these receipts afaik were not fungible dollars. The USA Notes (which were not created from debt) and the US gold and silver coinage were distinct from the bank notes. Prior to that:
For Americas first 70 years, private entities, and not the federal government, issued paper money. Notes printed by state-chartered banks, which could be exchanged for gold and silver, were the most common form of paper currency in circulation. From the founding of the United States to the passage of the National Banking Act, some 8,000 different entities issued currency, which created an unwieldy money supply and facilitated rampant counterfeiting. By establishing a single national currency, the National Banking Act eliminated the overwhelming variety of paper money circulating throughout the country and created a system of banks chartered by the federal government rather than by the states. The law also assisted the federal government in financing the Civil War.
Laterus' competition idea is impossible because the notes could not be fungible without causing the Tragedy of the Commons which is the current federalized system.
Nevertheless society demands liquidity because humans are focused in the near-term and rapid economic expansion is always politically favored. And then the collapse is blamed on the rich and society turns to Marxism.
This is natural because humans have a limited life span and are insatiable.