> where you take some bad loans and mix them together to get a "less risky" loan, since the chance of them all defaulting at once is less than the chance of all but one defaulting

Yes. This is mathematically sound.

> those are then recursively repackaged until they have an A+ rating, or some such nonsense, right?

AAA-rated CLOs performed with the credit one would expect from that rating.

The problem, in 2008, wasn't that the AAA-rated stuff was crap. It was that it was ambiguous and illiquid.

> I'm guessing there's no rule that says you can't intermingle these things across separate "independent" securities, even if the two securities end up containing fractions of the same underlying bad loans

Defining independence in financial assets like this is futile.

> there's no chance of correlated defaults in a bucket of bad business loans that's structured this way

Software companies being ravaged by AI fears.

> replace "housing loans" with "unregulated securities" and note that my description switches from describing the 2008 financial crisis to describing the Great Depression

It also describes a lot of successful finance that doesn't reach the mainstream because it's phenomenally boring.