Immoral Moral Hazard

AIG stock has shot up recently as investors know a good deal when they see it, a busted stock that the government cannot allow to fail and owns 80% of means that there's no downside to stock in a company that has unlimited bailout potential should things go bad. Thanks, Moral Hazard!

“Who would want to buy a stock that’s still 80 percent owned by the government?” wondered William T. Fitzpatrick, an equity analyst at Optique Capital. Shares ended Thursday at $47.84, a gain of 27 percent from the previous close of $37.69.

Yes, the company has named a new chief executive, who comes from a solid background at MetLife, and yes, he has said that A.I.G. will pay back the government for its bailout sooner rather than later. The giant insurer has been moving to change the names of key business units and working to disentangle its bewildering structure. It even reported a profit in its latest quarter.

But none of that really explains the recent gains. Speculation swirls daily that some deal may be in the works, that short sellers are being squeezed out of their positions, or that the company’s former chief executive, Maurice R. Greenberg, may be poised to make a comeback in the role of consultant. The new chief executive, Robert Benmosche, has been fueling some of the interest, as he talks about seeking advice from Mr. Greenberg and slowing the breakup of A.I.G. so it is not a fire sale.

Mr. Fitzpatrick said he thought the likelier explanation for the increased share price was that speculators looking to profit from a distressed stock had pounced on A.I.G.

“The risk appetite has returned to the marketplace,” he said. “People don’t want to get 5 percent back. They want to get the money back that they lost over the last year.” They look at a cratered stock like A.I.G. and think, “This is the place to do it,” he said.

Of course it is. And thanks to Treasury's trillions, investors are more than happy to get a piece of this rocketship as it blasts off for moral-hazard fueled points still unknown.

The best part? Former AIG CEO Hank Greenberg is making a mint.

Also, the stock is concentrated in a few hands, meaning that a small number of investors can cause a big move in the stock price. The number of shares was reduced by a 20-for-1 reverse split in June. The government has the biggest stake in A.I.G., and the biggest common shareholder is Mr. Greenberg and a group of entities he controls.

Cha-ching! That's the sound of you getting screwed.