I actually sympathize with Geithner. You have to look at Geithner's approach from a system design point of view. All things being equal, financial instruments will prefer less regulation over more. As other areas of the financial system become more regulated, he has to be mindful of the money will just flow to unregulated areas.

An analogy would be like squeezing a circus balloon on one end, and unless there's equal pressure all around, the other sides will just expand.