In case you missed Treasury Secretary Tim Geithner’s revisionist fiction in today’s Wall Street Journal, he takes the critics of Dodd-Frank to task for forgetting about the financial crisis and how it came about.  Sadly it is Geithner who forgets (or willfully ignores) the causes of the crisis.  Just a few highlights:

Geithner reminds us of the AIG bailout.  He forgets that it was the NY Fed’s approval of using credit default swaps to lower bank capital that lead to so much bank counter-party risk being concentrated in AIG (see Gillian Tett’s Fool’s Gold), as well as increasing bank leverage.  But then who was heading the NY Fed at this time?  Tim Geithner.

Mr. Geithner goes on to complain about the growth of the shadow banking sector.  Who was it that approved banks’ exemption from the Sarbanes-Oxley rules on off-budget entities, which lead to the growth of various bank off-budget, hidden liabilities?  Again, Geithner’s NY Fed gave that approval.

Geithner raises the issue of “risky short-term financing” but does so without mentioning that the primary reason for such was the low interest rates and steep yield curve created by… again Geithner’s NY Fed (and the rest of the Federal Reserve System).  There’s a reason that MF Global failed in basically the same way that Bear Stearns did, because monetary policy provided both with strong incentives for maturity mismatch.  But since Geithner also acts shocked that “household debt rose to an alarming 130% of income” perhaps he needs a few lessons in monetary policy.  Did he seriously not think that cheap credit, via the Fed, would result in increased debt?

Perhaps all this amnesia should not be surprising coming from the same guy who told Congress he had never been a bank regulator.  He certainly never acted like one, despite the title of NY Fed President.  The real amnesia is that despite about two decades of engineering one bank rescue after another, beginning with his role in the peso crisis, Mr. Geithner still does not understand the concept of moral hazard.  When he complains about late night calls from “then giants of our financial system” I, for one, wish he had just stayed in bed.  Would have saved us all a lot of money and we’d have a much more stable financial system.

I have no sympathy for bankers afraid to lose their subsidies.  What our financial system needs is a  dose of real market discipline.  Mr. Geithner’s rants only serve to distract from the fact that Dodd-Frank will make the next crisis more severe and more likely.  It fails to address the actual causes of the crisis while further extending the worst features of our regulatory system.  Worst of all it distracts from having a conversation about fixing this system.  Repeal and Replace.