At the first Financial Crisis Inquiry Commission, or FCIC, hearing, former California State Treasurer Phil Angelides made a very interesting statement while questioning the Goldman Sachs Chief Executive Officer Lloyd Blankfein.

“It sounds to me a little bit like selling a car with faulty brakes, and then buying an insurance policy on the buyer of those cars,” Angelides, chairman of the bi-partisan 10-member FCIC, said in describing how the big banks operated their businesses leading up to the crisis.

Yes, we saw commissioners asking probing questions about the banks’ possible acts of negligence, their legal obligations to their customers and other related issues.

More importantly, Angelides also warned CEOs that the commission could refer evidence of criminal wrongdoing to law enforcement.

Morgan Stanley CEO John Mack admitted “there is no doubt that we as an industry made mistakes.”

He said the financial crisis “also made clear that regulators simply didn't have the visibility, tools, or authority to protect stability of the financial system as a whole.”

Today, the commission will hear about officials’ efforts to investigate and prosecute financial wrongdoing in the crisis.

The hearings are expected to last the remainder of the year.

The FCIC hopes to have policy recommendations available for Congress in their final report.

We’ll see what happens.

No doubt, in the foreseeable future, we’ll have a different legal playing field.

It will be interesting to see what the rest of the other big players in the world will come up with.

You can be sure that I’m not optimistic and I usually don’t build on good intentions, certainly not in the financial world.

For those of you who want to follow the FCIC, visit www.fcic.gov.

Elsewhere, Fitch Ratings affirmed China's long-term foreign currency ratings and local currency Issuer Default Ratings, or IDRs, at A plus and AA negative, respectively.

The outlook on the ratings is stable.

At the same time, the agency has affirmed the country's short-term foreign currency IDR at F1 and the Country Ceiling at A plus.

Fitch Ratings also issued some sharp warnings about China that international investors shouldn’t overlook.

Fitch Ratings believes, and this is very important, that the surges in investment spending and credit growth are both unsustainable.

If unaddressed, this could lead to serious financial distress in the medium-term with sovereign rating implications.

China’s recent stimulus package focused on infrastructure investment and the return to a yuan-renminbi exchange rate effectively pegged to the U.S. dollar have been a setback for China's rebalancing efforts to rely more on consumption and services for growth, and less on investment and industry.

Fitch Ratings expects gross domestic product, or GDP, growth of 9.3 percent in 2010 but cautions that similar growth rates could be difficult to achieve in the medium-term without either a resumption of strong export growth or a meaningful increase in domestic consumption.

The rating agency also states its concerns about an eventual deterioration in Chinese banks’ asset quality amid the loan growth acceleration we’ve seen in 2009 and the growing popularity of unreported loan transactions.

High investment spending, particularly in the real estate sector, also carries the risk of asset price misalignments, which means “bubble,” and a marked correction in Chinese property prices would immediately affect the banks.

It’s important to note the bank’s direct exposure to real estate accounts for approximately one-fourth of their loan portfolios.

In addition, indirect exposure to real estate investments of state-owned enterprises is also sizable.

We also know that local governments rely heavily on sales of land and land rights, meaning their fiscal positions would be directly affected by any sizable property market correction.

It’s a fact that local government finances in China are not transparent.

Their debt liabilities and guarantees extended to state enterprises are, in fact, unknown.

Given the significant role of local governments in implementing the massive economic stimulus, this “unknown element” of China's public finance position is of increasing concern from a ratings perspective and consequently should be kept in mind by the international investor.

To me, the “Chinese local government finances” is a real Pandora’s box.

The big question for the investor is: When will that box be opened?

Sorry, but I don’t have the answer, yet.

Be patient.

That could take some time, but I’m not sure.

Back in the United States, there is some mystery in the Treasury market about who is buying government debt these days.

A recent auction of $21 billion of 10-year U.S. government bonds had a good bid-to-cover ratio of three times and yielded, as expected, 3.754 percent.

Now, when looking at the auction statistics, we saw that direct bidders (non primary dealers bidding on their own accounts, such as institutional investors like hedge funds or bond funds) accounted for 17 percent of the total bonds sold, the highest percentage of direct bids in a 10-year Treasury auction since May 2005, and well above the recent average of about 5.6 percent.

Indirect bids (usually foreign buyers) accounted for 29 percent of securities sold versus an average of 44 percent in 2009 as a whole.

Tuesday, saw a $40 billion auction of three-year Treasuries with direct bids accounting for a record 23 percent, compared with an average of 6 percent in the past 10 offerings.

Indirect bidders purchased 38 percent of the bonds, compared with 51 percent on average.

Something is going on.

Either there has been a shift in the structural demand for U.S. debt, or a big single buyer has been very active.

Probably, it’s the latter one.