- - Tuesday, May 13, 2014

Tell-all books are a tradition in Washington. Literary merit is not important, but titillating insider detail is, and sometimes certain books contain islands of truth in a sea deep with self-congratulations. Timothy F. Geithner, the former Treasury chief, is cashing in now with a story of what it was like during the financial storm.

One titillation revealed in his book, “Stress Test,” is Mr. Geithner’s claim that the White House urged him to lie on Sunday morning television talk shows as the financial crisis unfolded. He was ordered to blow a “dog whistle” to alert the administration’s left-wing base and insisted, knowing it was a lie, that Social Security would not be affected by a bailout or reform legislation that was struggling through Congress.

As we see in the unfolding of facts about Benghazi, President Obama’s men — and women — are comfortable standing before the country and telling whoppers of outrageous size. One chapter details the backroom deals the administration made to muscle the Dodd-Frank Wall Street regulation bill, which Mr. Geithner helped draft four years ago, through Congress.

A special election in Massachusetts had elected Scott Brown, a Republican, to replace Teddy Kennedy in the Senate, and at the time, the Democrats had only 59 votes in the Senate, one vote shy of the 60 needed to overcome a Republican-led filibuster. Rather than deliver on his shrink-the-government promises made during the campaign, so Mr. Geithner tells it, Sen. Brown joined his Democratic colleagues in a deal. He would vote for the Dodd-Frank “reform” bill if the Democrats would carve an exemption for two important constituents, a pair of Massachusetts-based money-management firms.


On the House side, Barney Frank, then a congressman and the chairman of the House Financial Services Committee, agreed to terms beneficial to his home state of Massachusetts. Dodd-Frank thus was not reform, but more business as usual.

The “reform” was a masterpiece of crony schemes enabling politicians to pick the winners and losers in the marketplace. Not all the winners were based in Massachusetts. Leveraged-buyout, private-equity firms such as Warburg Pincus, based in New York, escaped most of the pain and inconvenience, aside from having to register with the Securities and Exchange Commission.

When Mr. Geithner left the Obama Cabinet, he sought and received a nice position on Wall Street. He joined Warburg Pincus with the door prize of a vault of cash. He remains there now.

The regulatory scheme has punished small banks with compliance costs, forcing them to jump through hoops to satisfy bureaucrats in Washington. The shadow banks, hedge funds, private-equity firms, insurance companies and mutual funds will get their share when taxpayers will inevitably be required to pay for big bailouts when these companies go belly-up. Insiders know how to game the legislative system to get the advantage over their competitors. Exemptions from Dodd-Frank’s most painful requirements worked like magic.

When he signed the Dodd-Frank legislation, Mr. Obama promised that the new law would “make sure that everybody follows the same set of rules, so that firms compete on price and quality, not on tricks and not on traps.” But tricks and traps, as his friends on the street knew, work best. The outrage in Washington springs not from what’s against the law, but how to manage the tricks and traps within the law. Dodd-Frank says it all.