Of the 911,039 mortgages Clayton examined for its Wall Street clients -- a sample of about 10 percent of the total mortgages that the banks intended to package into securities -- only 54 percent were found to meet the underwriting guidelines. Standards deteriorated over time, with only 47 percent of the mortgages Clayton examined meeting the guidelines by the second quarter of 2007.

So, did Wall Street throw all those mortgages back into the pond as being too risky for securities they were going to sell to clients? Of course not -- many were packaged right into their product...

In fact, the banks probably weren't disappointed at all by the shaky status of many of these loans: in part because they could use the information that some of the mortgages were rotten to get a discount from the mortgage originators on the price paid for the entire portfolio... But the amazing revelation of the Sacramento hearing was that the investment banks did not pass this very valuable information on to their customers.