Angelides and the FCIC Show Their Teeth.

Today the Financial Crisis Inquiry Commission kicked off its first public hearing; preview here, commission membership here.

The bankers' opening statements were defensive: thanking the government for their rescues, excusing regulators, blaming interest rates, talking about the need for new rules in their industry. They are doing their best to concede to basic regulatory plans that seem inevitable -- a federally regulated clearinghouse for standardized derivatives, for instance. But the first interrogation between Chair Phil Angelides and Goldman Sachs CEO Lloyd Blankfein quickly became contentious (these quotes are a little rough but capture the discussion).

Angelides asked about Goldman's practice of selling sub-prime mortgage securities while simultaneously betting they would fail. While Blankfein admitted that this was "improper," he defended it because it was the behavior of the market. As a "market maker," Blankfein claimed it was his firm's job to buy and sell any securities their clients instructed them to, but their own risk management responsibilities required them to short these securities in order to protect Goldman Sach's balance sheet.

Angelides wasn't impressed: "It sounds to me a little like selling a car with faulty brakes, and buying an insurance policy on the buyer of that car. It doesn't sound like a good practice for the market." When Blankfein claimed that his firm was dealing with professional investors who should know the risks, Angelides dismissed him briskly, saying that "these are pensions of police officers."

Next up is Vice Chair Bill Thomas, who is now demanding that the four bankers answer in writing all of the questions proposed yesterday by Andrew Ross Sorkin, and saying that all Americans should submit questions via e-mail to him at the committee so he can ask them of the witnesses. Good start.

Also, I'm live-tweeting the hearing here.

-- Tim Fernholz

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