H. Michael Arguello_

Combating Cascading Short Spirals

Thanks for the comments all.

Turkeyeys, I agree that a short circuit breaker by itself is insufficient. However with realtime short information being made available, special situation funds could take out short attacks. If the shorts stop at 19% per day, a daily basis is more than enough time for Spec Sit funds to do their homework. The problem right now, in my opinion, is that the current time window the shorts have been using to overload the system with sell orders is too short of a time to research a company and go the opposite way. The bear raiders have the advantage in that they know how many fiat shares they are creating whereas long investors are flying blind on the fiat float.

Once a company has collapsed more than 25% in share price in one day it begins the downward spiral of downgrades and panic amongst investors and creditors.

Short selling has its uses in the market, but the current abuses on the Street require a response. The uptick rule would be nice but truth of the matter is, modern buy and sell programs can easily get around it by using computers to trigger minor upticks with a buy prior to large sell orders.

Is AIG a Buy Following the Government Bailout?

An interesting read. Like others have posted, I have to disagree with the assumption that the $85 billion can be used to value the equity of the company.

The situation is that the government has loaned up to $85 billion to AIG via a credit facility for up to two years. In exchange, the debt must be repaid from asset sales and carries an 11% interest rate. In addition, the government demanded extra compensation in the form of warrants that grant a near 80% stake in the company. The point of the warrants is to discourage other companies from trying to use Uncle Sam's credit; its a punitive measure to push private market participants back into the private market unless there really is no other way.

On the flip side, I do believe AIG is solvent, simply not liquid. As a result, the loan will allow them the time ot liquidate in an orderly process. In the end shareholders will get some renumeration, but I do not know what will be left after the asset sales - no one does until the bidding begins.

The company is too much of a conglomerate to figure out what it will fetch, although history tells us that large conglomerates tend to bring more in pieces than as a whole (see Ma Bell/AT&T+Baby Bells for example).