deep rot

Ian Welsh over at FDL is as good a read as Paul Krugman for understanding the state of the economy (maybe better). Virtually everything he publishes is worth your time. From his latest:

The problem, though, is larger than this. Fundamentally, most of the instruments at the heart of the financial crisis were sold based on fraud.

The mortgage backed CDOs were sold based on the assumption that a bubble in housing would continue forever, many of the homeowners' financials were deliberately not checked, and the mortgages were designed with resets which made higher default rates quite likely, but those high default rates weren't factored into the returns and risk sold to investors. Meanwhile homeowners were sold mortgages with the implicit assumption that housing prices would go up forever and there would never be another recession so "sure, you'll always be able to make the payments."

Read it all. The problem with his prescription is, of course, that Obama doesn't have the political chops to "cut the knots;" see: "post-partisan" stimulus bill.

Perhaps no president would.