Fed Steps In To Help AIG: Déjà Vu All Over Again

In a post last week, I noted an inconsistency between the price action of Lehman Brother’s (LEH) shares and the overall equity market which seemed to lend (further) credence to the notion that many equity traders are totally clueless.

Today, there was a roughly similar development that appeared to reinforce this view. More specfically, a story hit the newswires (see “Fed Said to Reverse Stance, Consider AIG Loan Package”) that indicated the U.S. government was rethinking its stance on helping the beleaguered insurer (which is problematic in its own right, but we’ll leave that aside for now).

Again I ask the question: If the news — which propelled the overall market towards the day’s highs by the close of trading — was so good for American International Group (AIG), why did the company’s shares finish down  21.2 percent?

Hmmm. Sounds like déjà vu all over again.

Anyway, I took the liberty of preparing a graph (courtesy of Bloomberg) which shows just what happened during the session.

(P.S.: Not long after I first uploaded this post, AIG’s shares fell another $1.86 to $1.89 after Bloomberg reported that the U.S. Treasury was “considering taking over [AIG] under a conservatorship as one option to address the insurer’s crisis.” Just like with Fannie Mae and Freddie Mac. Uh-oh. Double-oops.)

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