Banks can only lend on a ratio of money they have deposited with the Fed. I believe it's 1:7 (don't quote me on that though) so they can lend out their deposit + 7 times as much. So if you deposit $100 you can lend out $800. But what do you do if you have already lent out your maximum? That's easy; you bundle it up as an investment portfolio and sell it to investors (for a tidy profit of coarse). Now they are taking the risk so your ratio is cleared up and your good to lend out another $800. The Fed doesn't have the money they have the right to make the money. So when you sign an agreement for a mortgage your signature is literally creating the money.
The crisis is that there is no more "liquidity" in the banks that is no bank has enough ratio left to "lend" money. You can't simply increase the ratio or the economy will really go for a dump. A bubble needs to be found to soak up all that excess cash. Before the mortgage crises the bubble was in housing. This is why houses were increasing in value so much. It wasn't realistic but an effect created by the system. Now a new system needs to be found if the whole thing isn't going to collapse like a house of cards. Global warming and energy seems to be what economists are hoping will sop up the excess money.
This is where the bail out is such a crime. The people who should be taking the risk aren't but instead the American people are; by being unfairly taxed both with the bailout and the resulting inflation. It is quite right to say inflation is taxation in a system with central banks. The only problem it is a tax not by government but by the elite that control the flow of credit, i.e. money.
Here is a video that will explain the central banking system. It is probably very different than you were led to believe: Money As Debt.
