NEW YORK (

TheStreet

) --

Ambac

(ABK)

,

CIT Group

(CIT) - Get Report

, and

MBIA

(MBI) - Get Report

all posted huge gains Tuesday on no news, and I think misguided optimism on

AIG

(AIG) - Get Report

is the culprit.

I write "culprit" because I suspect these rallies will end in tears. AIG was also spiking higher until

Jim Cramer

wrote on

RealMoney

that the giant corporate scandal sponge should issue some equity, providing a clue to how fickle the share movements are.

AIG's run-up began in early August and it was showing signs of petering out this month. Then on Monday, the shares jumped 23% after

Bloomberg News

reported that Rep. Edolphus Towns (D., N.Y.), chairman of the Oversight and Government Reform Committee, wants to ease the terms of AIG's bailout.

Never mind that AIG shares are very likely worthless, this news was enough to send them surging upward. Though I was unable to find a substantive reason for the big rally in

Ambac and MBIA

Tuesday, Rob Haines, a

CreditSights

analyst I quoted in the story, said he thought shares of those companies were also effectively worthless without a government bailout.

So perhaps speculators are theorizing that if Rep. Towns wants to go easier on AIG, he may next want to bail out the bond insurers. Never mind that Rep. Towns, while chair of a congressional committee, is not exactly Zeus. Never mind that even if he gets the Treasury Department to give him what he wants, AIG's shares are still probably worthless. Never mind that he has not uttered a peep about MBIA or Ambac. Buy, buy, buy, buy! Strange days, indeed.

And what about CIT? A bullish hedge fund manager who owns the bonds and the preferred shares sent me a note from a trader saying the stock was up on "rumor the government could potentially fund CIT."

There we have it. Rep. Towns is now CIT's sponsor, as well! The whole thing is a bit much. The government is already into CIT for $2.3 billion, and while I'm sure officials at the Treasury are not eager to lose that money, I find it hard to believe they're ready to cough up more at this point. Not while M&A is picking up and CIT has extremely valuable stuff to sell, or while CIT has a group of six giant hedge funds that want to keep it afloat.

Despite the silliness, I would not be surprised if CIT's shares turned out to be worth something. Still, as I have written in the past, the

bonds

are a much safer play and many continue to offer returns of 50% or more.

--

Written by Dan Freed in New York

.