What did they know and when did they know it...

Ok I've had enough. Today Geithner came out spewing that same nonsense about the government guaranteeing the banks debt which is essentially the same as an agreement to pay off their debt. The same banks that lobbied to make filing for bankruptcy more difficult and have been ripping consumers off with usurous interest rates on credit cards and car loans for years. The same banks that KNOWINGLY passed on exorbinant risk to investors; some saavy and some not so saavy. The banks need to be investigated for myriad reasons not limited to the following:

They knowingly securitized bad debt.
At the start of the housing boom, mortgage brokers and lenders used their established relationships with commercial banks and investment houses to pass off riskier debt. People have to question why investment banks, many of which had lending arms of their own post the repeal of the Glass-Steagall Act, were purchasing paper from mortgage lenders. If the investments were as safe as purported, why were borrowers paying a premium for the loan in the form of higher interest rates and why couldn't the retail or commercial lending arms of these banks provide loans to these consumers in the first place?

They knew the product lines were dangerous.
Banks knew that mortgage lenders were creating products that would significantly impair a borrowers ability to sell their home. Loans with LTVs of 103-125% were prevalent meaning that borrowers were getting loans that were higher than the value of the asset itself. This is fine in a growing market but creates quite a challenge if the market stagnates or worse begins to decline. Initially banks sought legislation like the revisions to bankruptcy law forcing homeowners into a state of indetured servitude. However as more homeowners continued to defualt, investment banks stopped purchasing paper from mortgage lenders forcing them to collapse.

Banks knowingly sold assets that had questionable value.
Once investment bankers began to realize the toxicity of the assets they were holding, they began to look for ways to spread the risk. Issuance of asset backed secutrities peaked between 2006 and 2007, AFTER banks cease to buy loans from mortgage lenders. Banks did not differentiate the assets in these securities even though they were aware that there were significant challenges with some of the loans they were holding on their books to be bundled into securities. In the pyramid scheme that was the mortgage industry for the past decade, the banks looked for new entrants in an attempt to recoup their losses. This worked well until outside investors began to challenge the valuations of the assets backing the securities.

If for no other reason than to garner a better understanding of the potential depth of the challenge currently faced by the banks, the government needs to conduct a thorough audit of these banks books. By thorough I mean access to the banks ledgers and internal manangement consolidation systems and reports. The government has many arms capable of carrying this out, including forensic accountants in the IRS and FBI. Congress should request this inquiry before attempting to shore up assets they don't understand.

I think at this point everyone is growing weary of the charades and grandstanding of hearings that accomplish nothing because congressional leaders don't even know what questions to ask.