AIG Might as Well Bang Out Some Stock

Why doesn't AIG (AIG - commentary - Trade Now) do a gigantic secondary? Does anyone in the world believe this company isn't cash-strapped? We read about it every day. Now a G.A.O. report just out tells the truth: The situation is pretty hopeless.

Of course, there are two reasons why this report will be dismissed. First, the endless chatter that something good's about to happen here, emanating from someone who should be made to shut up now, Hank Greenberg, the man who sowed the seeds of AIG's destruction even as he invented the company. We can't blame everything on his successors, as he was the one who set up the rogue London office, and he commanded the company to insure financial products, not just physical products.

As usual, I urge you to go back to the December 2007 analyst meeting to see how long this company was doing stupid, stupid things, insuring banks to allow them to get around capital requirements. He takes no responsibility whatsoever and shamelessly hypes the company as undervalued. He's a disgrace.

The second reason for the run is the uncharacteristic hyping by new CEO, Robert Benmosche, who got in, just like his predecessor, and said a lot of rosy things before doing any homework. AIG is an incredibly complicated company, and you can't wing the valuation here. I didn't get Benmosche's point at all when he insisted that it would be no problem paying off the huge obligations to the government. Actually, they aren't huge, they are unfathomable.

Both of these gentlemen goosed what looked to be an excellent short, as the vast majority of reverse stock splits led to an almost immediate decline in price after their completion. The reality of those odds made short-sellers go nuts with the thing after the split, and for weeks on end, short-selling represented 50% of the trading or more.

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