No way can I sum it all up here, but leverage is like fire, a dangerous but extremely useful tool so long as it does not get out of control. Basically leverage has to be limited by law in deposit institutions- with the officers of the bank personally liable for losses and government officials who inspect the banks also personally liable.
The crisis we have seen are not really because of "fractional reserve" banking for this simple reason- there are no reserves. There is no real money anywhere in the system and the real assets have been levered 50 to 1 or even 100 to 1. If leverage were limited to 4-1 or 5-1, we could enjoy some of the financial flexibility of prudent levering without the risk of the banks levering to infinity in an effort to buy up the world.
I have done a poor job of describing the position, but there it is http://www.amazon.com/Localism-A-Philosophy-Government-ebook...
Localism is for people who can still sleep at night even though somebody they don't know in a city they have never been is doing things differently. ("Localism, A Philosophy of Government" on Amazon for Kindle or Barnes and Noble ebook websites)