Normally I’d drop this one into Headlines, but since everyone’s caught up in his tax dodging, I want to emphasize the point I made yesterday: The real objection to Geithner isn’t back taxes, it’s the fact that the financial collapse happened on his watch as head of the New York Fed. What does that mean, exactly? In the case of Citigroup, evidently it meant a lot of rhetoric about making sure banks have enough capital to offset their risk while politely ignoring Citi making riskier and riskier deals as its capital dwindled.

Because the Fed conducts much of its work in secret, details about Geithner’s role in the Citigroup debacle remain hidden. But a review of publicly available records shows that the New York Fed, in a key period, relaxed oversight as Citigroup went on a risky spree…

In 2006, Citigroup’s issuances of collateralized debt obligations – securities in which mortgages and other debts are bundled and sold based on risk – grew to $40.9 billion, more than double the prior year. The number of subprime mortgages originated by Citigroup rose 85 percent that year, while other top originators had begun reducing subprime output, Fed data show…

These deals pumped up Citigroup’s balance sheet. Assets went from $1.2 trillion at the end of 2003 to $2.3 trillion by September 2007. But the bank’s defenses weakened during the same period. By the end of September of 2007, records show, Citigroup’s once comfortable Tier 1 capital ratio had fallen to 7.32 percent, below the bank’s target…

When it comes to valuing [a company’s capital] base, regulators and credit rating agencies favor using common stock. But Citigroup, beginning in late 2007, relied increasingly on “hybrid” capital forms, such as trust-preferred securities, to prop up its Tier 1 ratio.

Even with these hybrids, its capital ratio dipped to 7.12, well below peers like JP Morgan Chase, at 8.44 percent, or Bank of New York Mellon, at 9.32 percent. In general, the NY Fed and the Federal Reserve allow the use of hybrid capital but apply limits and ask firms to obtain prior approval. In 2007, Citigroup exceeded the limit, the only bank among its peers to do so.

Don’t expect Republicans to hassle him at his confirmation hearing for not being a strict enough regulator. Will Democrats? They’re chomping at the bit to “fix” Wall Street; The One himself, in his speech on the stimulus, vowed that “No longer can we allow Wall Street wrongdoers to slip through regulatory cracks.” Why he’d pick Geithner as his economic quarterback in those circumstances seems bizarre — until you realize what his real job will be, and the fact that Larry Summers almost certainly would have been Treasury Secretary instead if not for the “unpleasantness” at Harvard.

The confirmation hearing’s been postponed from Friday to next Wednesday, incidentally. Not that it matters.