AIG Bites the Shorts

Oh my, these shorts in AIG (AIG - commentary - Trade Now), what do they do? They have now seen the stock go from 70 cents to $1.50 in recent weeks. Ouch?

Well, of course not. Unless you started shorting it in the $20s, something that trading records indicate was done in spades. Almost 50% of the trading in this company was short, most of it done in the low $20s, and from all appearances we don't know how much was covered, but I doubt it was anywhere near what was put out.

I have no idea why they shorted the stock, other than history -- that's right, history. The history of 10-to-1 and 20-to-1 splits (AIG was the latter) is pretty pat: Only suckers buy. You should always expect the stock to go right back to lower numbers and be revealed as something not worth owning. Indeed, revealed as something worth shorting.

Now there are positives about AIG: the appointment of a serious CEO from the insurance world, Robert Benmosche, who is a clean break with the previous team, some sales of assets that are actually better than expected, and, of course, the "profit."

I think the profit is illusory. There is simply no way the government doesn't get paid first before the other common-stock shareholders, and of the common-stock shareholders, the government is the biggest by far.

It is, like Fannie (FNM - commentary - Trade Now) and Freddie (FRE - commentary - Trade Now), an example of a company that should have filed for bankruptcy and didn't because of governmental concerns. The feds didn't want to violate the contracts of either, which is what bankruptcy would have signaled. AIG, in particular, might have been an unmitigated disaster if it had filed. Why should the other common-stock shareholders benefit from this taxpayer largesse?

Doesn't make sense.

Doesn't make sense that there should be anything left for the common.

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