Yes, Bob Pasani referred to the 10% rise in the share prices the day the rules were implemented and the drop of 10% the day they expired as a coincidence. BTW, odd action in Berkshire. Any possibility that Buffett buys or backstops AIG?

Beltway Greg

This is too idiotic a statement to be worth comment.

I am surprised at Jim Cramer's sympathy for AIG. If one knows AIG very well, and few do, it is hard to generate any sympathy for the organization at all. Consumer policyhlders, individual investors in retirement products absolutely deserve sympathy, although they will probably come out whole (though the fund holdings might be market-battered, a normal risk). The P&C policyholders, & certainly the sophisticated P&C brokerage and re-insurance industries, always knew AIG was a very well managed house of cards for years. As an employee there in the mid '90, I had senior executives as internal customers throughout the company. We would routinely commit an AIG company with, for example, an $80 capital base, to a $20 million office lease. We would simply climb up the 130 AIG company ladder until we found an AIG company with sufficient equity to satisfy the landlord, and use that company's balance sheet for the liability. But the rule was never, never put the Triple A rating on a corporate obligation directly. The triggers in many other contracts of every kind should AIG lose it's Triple A rating were such an over-used, smoke and mirrors trick, the company never thought it would face calls on those clauses. AIG does have significant valuable assets. Sun Life and other acquisitions, private equity companies, the large piece of Goldman they acquired when Corzine talked the Goldman bigwigs to go against Wall Street Biblical law and HOLD it's damaged bond holdings as the end of the early 90's bond crisis hit. Goldman went to the stupidest lenders at the time, the Hawaiian Trusts to raise a few billion, and to AIG, tempting Greenberg's nose for blood in the water, and AIG supposedly ended up with a percentage ownership, reportedly 17 percent, of Goldman. When I was there, the investment folks down the hall referred to routinely being offered 17% of every deal Goldman was investing in.
Greenberg used the 130+ AIG companies to obfuscate the financial issues quite succcessfully. As we have seen over and over again, Moody's, S&P, and the others are "white tower" analysts with little feel for the realities of the businesses they whose debt they rate. (go visit them the rating agency analysts, interview with them, it's painfully obvious). The rating agencies are always the last to "get it", a-la Enron, Worldcom, AIG, etc, etc. In the late '90's when I lost a big commercial mortgage deal to Nomura, and given my knowledge of what worked in rated deals back then, went to my managers and said, "what we lost to cannot be done", days later the Lehman MD of the CMBS group demonstrated the rating agencies had completely missed Ethan Penners latest "reverse equity" trick that he was including in Nomura's CMBS offerings.

It's not the shorts that are killing AIG, it's AIG's own Greenberg-era greed, compounded by rating agency incompetence. It the smart short sellers who smell blood earlier than the other sharks in the pool.

AIG is not a kind and gentle company that is a great loss as a corporate model. To it's employees, it's always been a sweatshop. It had a 5 year "cliff" plan where none of AIG's contributions to one's retirement or 401 vest at all until day one of Year 6, and most employees don't last that long, leaving massive amounts piling up in the retirement funds for the benefits of the "key man" candidates the company chooses to keep long term.

The whole absurd Greenberg family drama, where the dutiful college graduate son is ousted, (after all, he had been through rehab) to be replaced by the dropout ski-instructor son, until he was ousted by the perennially 72 year old elder Greenberg. (he was 72 for 5 years or so) Come, Mr. Kramer, blame the shorts? How about blame the source of 30+years of predatory management and hubris on the part of M.R. Greenberg.

If short-sellers drive the price down (as is claimed) then why doesn't another company come in and buy at firesale prices?

Why didn't anyone buy Lehman?

It could have been purchased on the cheap, yet everyone stayed away.

In my opinion, blaming short-sellers misses the mark.

This is the financials margin call. When an investor makes a bad bet and gets a margin call, the brokers have absolutely no mercy. They have no problem wiping you out completely. Now it is their turn. Unfortunately, the government bails some of them out, and others, Merrill, find a sugar daddy. Investment banks and hedge funds should be wiped off the face of the earth. They were a sophisticated scam to begin with. This is only justice. Tragically, it is the individual investor and the public at large who are once again shown no mercy, by the government.

I wonder if homeland security might be exploring the possibility that some of the naked short selling or short selling in general may be acts of financial terroism? flying planes into financial institutions is not the only way to bring down the system.

At the risk of sounding naive, i would think the SEC would have suspended trades in AIG stock to cool things down a bit so that investors have time to evaluate the true state of AIG financial condition. AIG would then have had time to deal with the crisis to undercut some of the short-selling .

Selling America Short

Imagine a world in which anyone can buy any amount of fire insurance on any building, regardless of its value or ownership. Imagine that anyone can buy any amount of life insurance on any unrelated individual, without their knowledge or consent.

The economic incentives in such a world guarantee that many buildings will burn, and many will die, to the financial benefit of those buying the insurance policies where they have no risk of actual loss.

Wall Street and the SEC have created such a world. Credit default swaps allow a party to reap a financial reward when a company fails. Shorting the ABX index allows a party to reap a financial reward when asset values of certain financial instruments decline in value. Unlimited shorting of stocks, without restraint as price declines, magnifies both the speed and magnitude of the price decline. Purchase of puts sends a stock price lower as the option market makers sell unlimited, unregistered, un-issued shares into the market.

Where the capital markets once functioned as a source of financing for new business ventures, Wall Street and the SEC have turned the capital markets into an unregulated, rigged casino where gambling and asset destruction are the main attractions. Economic incentives now heavily favor the destruction of investment capital, rather than the creation of additional capital.

What can we expect to be the logical result of the past 8 years of SEC and Wall Street corruption of our capital markets?

(I first posted this on 4/13/2008)

Mr. Cramer was a little late with his blog this morning. AIG is toast. They have no one to blame but themselves. They need to look in the mirror each unemployed morning and remind themselves that their greed and shortsightedness, not shortselling, brought them to this point. Stop apologizing for them!

At the risk of making a broken record out of this article, short selling isn't the problem. What's the problem is that 20 years of Clinton-Bush hurt the system and made it possible to trash the investment banks while sticking it to the little guy. The reason why stocks like AIG are falling is because the CEO's and other executives are buying out the stock at an incredible rate. Reread the comments by Frankt and MarionPolk and then harrass Jim on Mad Money using their talking points because Jim needs to be taught a lesson.

This is what you get when you have the wolves guarding the hen house......Ok, so they're incompetent wolves......

I have been trading for a hedge fund for the past 11 years. It just burns me up when I see the press or companies themselves come out and blame the short sellers for what is happening to some financial companies. I think it just noise. If I try to sell a stock in my account which I am not long and designate it a straight sell my computer puts up a pop up dissalowing this. It has always been the same since I started here back in 97. These companies, regulators, and the press are so full of sh##, remember congress ruined the mkt when it converted to decimals. Bring back the up tick rule...I don't know of any brokeage firm out there right now that is allowing someone to sell a security short with out borrowing it first. Who? Tell me who. I hold accounts with two large discount brokers and niether one of them allow me or any other customer to sell a naked short. I am out raged.. Perhaps if the fundamentals of these companies were stronger investors would not be forced to sell out. Bring back the uptick rule..it will not make a bit of difference. The nerve of Goldman Sachs to even make such comments when they were shorting sub prime commercial paper all the way down. Give me a break please.

Come on FrankT Cut your BS Cramer is 100% correct. Go play with your toys!

Clean house-top to bottom. Everywhere!

Then: Require those resposniable to start paying for damages.