Buyer Beware! WSJ Says AIG Run Up Due to 'Speculators'

Last Updated Sep 23, 2009 2:50 PM EDT

The rise in American International Group shares since August is a mystery to every rational investor. Even the General Accounting Office, points out that while AIG now has survivability, its long-term ability to pay back what's owed on its $182 billion bailout package remains in doubt. And as everyone knows, Uncle Sam leads the list for payback.
The quick ascent in AIG's stock price is like that car crash movie, "Too Fast, Too Furious." Despite a few speed bumps, it has quadrupled from its $13 price back in August, reaching $55 at one point. It is now trading at $47.

But today's Wall Street Journal provides an answer to the enigma. AIG is "a playground for speculators," who are manipulating the float, the shares actually available for trading, to their advantage. The same can be said for those other crippled giants, Fannie Mae and Freddie Mac. "Traders have obtained large benefits speculating on these firms," says the WSJ, citing hedge funds who are in it to win it.

This may bode well for them, but what about the rest of us? These funds make money on the way up, but on the way down, as evidenced during the recent market crash, their rapaciousness only ended when their ability to short-sell was curtailed.

Let's float another theory. AIG has let it be known that it will do some public offerings, spinning off pieces of itself that it doesn't want. It has already approached investment banks about arranging these IPOs. Morgan Stanley, which was assigned by the Treasury to oversee the process, will certainly get a piece of the action.

Well, golly! Do these investment banks really want to see their deals go south, which is certainly what would happen if the stock drifts back to unlucky $13 a share?

AIG was once a trillion-dollar company, and arguably still has a lot of value locked in it. But that's not what speculators are interested in.

  • Ed Leefeldt

    Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and contributed to the Wall Street Journal and the New York Times. He is also the author of The Woman Who Rode the Wind, a novel about early flight.