“Isn’t the government in the lending business when it comes to fractional reserves, the banks are just the interest earning middle men.”

If you look at it that way then yes.

The govt is also in the freeway building business, the road building business, the business of education, and pretty much anything else you want to stretch it to. I mean transportation funds are drawn from taxes and allocated to states who then contract out the jobs right?

Perhaps all businesses should become nationalized and everyone become a federal employee?