Major media jumped on the story of the then-Tim Geither-led New York Federal Reserve instructing AIG not to disclose key information about their credit default swap payoffs to counter-party banks. McClatchy, the Washington Post and The New York Times all have big items about this today.

The Post doesn’t do journalism anymore, so they just re-ran the original Bloomberg News story. (Maybe it was from the Fiscal Times!)

While the others both include Treasury Department spokesman Meg Reilly maintaining that Geithner recused himself from AIG matters after being nominated to head Treasury on November 24, 2008, all of the articles add to and advance the story.

McClatchy surmises that this was done to protect Geithner from tricky questions during confirmation hearings:

The New York Fed’s efforts to delay disclosure of its payment terms coincided with the nomination of Geithner, its president, and with his two-month campaign for Senate confirmation. It’s not clear, however, whether a desire to protect Geithner or other reasons related to the nation’s financial crisis, which was roiling at the time, drove the push for secrecy.

However, the lack of disclosure spared Geithner from having to defend the Fed’s actions during confirmation hearings that already were clouded by his underpayment of federal income taxes.

Among other things, the NY Fed crossed out the part where it said AIG, then owned 80% by the federal government, would pay off swaps to big banks at “100 percent of the par value.” That’s probably not something Geithner wanted to explain.

The Times looks at the potential illegality of this measure on the part of the NY Fed:

Joel Seligman, a historian of the Securities and Exchange Commission, said the disclosure rules were supposed to apply to all public companies, with only a few narrow exceptions for things like trade secrets and national security. There was no exception for “too big to fail” companies on federal life support, he said. Companies are supposed to disclose all information that could be material, though that term is not clearly defined.

“When an organization is troubled, it actually makes disclosures of this kind more important,” Mr. Seligman said.

Others disagreed, saying that bank and insurance regulators normally keep their discussions with struggling financial institutions private, to keep from inciting runs. There has always been tension, one securities lawyer said, between banking regulators, who want to resolve problems behind closed doors, and the federal securities laws, which compel disclosure.

It’s an “experts differ on the shape of the Earth” story, but the anecdote they add later, where the Federal Reserve demanded secrecy in another aspect of the AIG bailout, sounds fairly determinative to me:

Thursday’s controversy follows other disputes over whether the Federal Reserve was suppressing information about A.I.G. that the public had a right to know. Early in the bailout, the company and the Fed refused to name the financial institutions that were counterparties to the company’s derivatives.

The Federal Reserve’s vice chairman, Donald L. Kohn, told angry senators in a hearing that the Fed thought A.I.G. would lose customers if such information were made public, and any such loss would only hurt the taxpayers.

But the senators warned that unless the names were revealed, no more bailout money would be forthcoming, and not long after that, the names were made public.

The inspector general for the bailout, Neil Barofsky, said in an audit of A.I.G. that the arguments against transparency simply did not withstand scrutiny. “Notwithstanding the Federal Reserve’s warnings, the sky did not fall,” he wrote in November.

Keep in mind that AIG are actually the good guys in this tale. Their lawyers considered the Maiden Lane III transaction to fall under SEC guidelines for public disclosure, by the NY Fed talked them out of it. And regardless of what the NY Fed’s general counsel has to say, that their role (which entailed crossing out information on the disclosure forms) was purely advisory, I think AIG, which was essentially owned by them at the time, knew exactly how to respond.

Treasury’s flip (and factually inaccurate) response isn’t going to put out the fires from this – nobody cares that a couple billion in Fed money was spent, they care that the people who crashed the economy and caused 10% unemployment not only got away with it, but got special treatment besides, and all under cover of darkness.

It will get worse for Tim Geithner before it gets better, and it’s virtually impossible for anyone to credibly defend him.