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Is AIG a Victim of 'Panic Buying?'

What happened to American International Group, the favorite dart board for analysts, pundits and Congressmen? Its stock rose a phenomenal 63 percent today, closing at $22 a share, well above its one-year target, according to Yahoo Finance. There are multiple reasons, but what it boils down to is, is it panic buying?

Let's look at the excuses. Short sellers are bailing out of AIG prior to its expected second quarter earnings report on Friday, according to options traders. AIG is supposed to make money this quarter for the first time in a long while, according to the few analysts who continue to cover the troubled insurer.

Then there's the Robert Benmosche Effect. AIG named him as the new CEO last Friday and he may likely take quick action on selling the company's ailing divisions. Coupled with that is a rumor floated by the Financial Times that Harvey Golub, the "respected" former head of American Express, will become chairman of AIG, giving Congress two heavyweights with which to deal.

CNBC put out a story speculating that AIG is preparing a debt-equity swap with the government that would lessen AIG's multi-billion obligation to the treasury. That's already been done with AIG's foreign life insurance and other units, but it could be tried again.

Website Minyanville noted that mortgage insurer Radian Group said on a conference call that it had seen a significant decrease in the early default rate of its 2009 mortgage business. Minyanville attributed the AIG rally to the fact that its financial services division has the same exposure.

It's nice to see AIG on the mend, if it fact it is. But let's remember that the real winners or losers are the taxpayers who own 80 percent of the insurer, not the day traders. And panic buying can easily turn into panic selling.

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