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Might Feds Seize AIG?

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On Tuesday the Dow and broader stock market clawed back from their biggest drop in seven years as optimism grew that officials may finance a rescue of AIG.

MIGHT FEDS SEZIE AIG?

After hours published reports suggested that officials might be considering putting AIG under conservatorship. In essence, there’s market speculation the government could seize AIG in much the same way they seized Fannie and Freddie.


However, CNBC’s Steve Liesman doesn’t buy it. He can’t imagine that the government has the legal authority to takeover AIG in that way.

I’m not quite sure what to make of that news, muses Karen Finerman. If a convervatorship were to happen I think equity would be wiped out, but I also think that’s the last ditch effort.

CNBC's David Faber adds that after speaking to his sources, Fed involvement “will not have the effect of triggering credit default swaps. They’re not going to do something ineffective. They’re going to do something that keeps the company out of bankruptcy.”

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WHAT'S AT STAKE?

The problem facing AIG is basically an issue of math. The amount of assets in the holding company are less than the amount of money they need. The only way to put money into AIG is to take control of the company, says Liesman.

We have to choose between lending AIG $80-$100 billion or letting them fail and seeing what happens. I think the latter is the better option, counters Guy Adami.

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WHY DOES IT MATTER?

The reason this matters so much is because AIG has insured so many different loans, explains Dylan Ratigan. The speculation is that more people won’t be able to make their loan payments and AIG will be on the hook for those “bad” loans.

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HOW TO TRADE?

That stock was as volatile as it gets on Tuesday, says Pete Najarian. It got so hot I took a shot myself with the puts. But it’s a bet. Or you could short other banks that you think could be affected negatively if AIG goes away.

That’s like putting all your money on red or black, adds Jeff Macke. Understand what you’re getting into.

I’m short financials , says Karen Finerman. And I can’t help but wonder if we’re blowing it all out of proportion, she adds. Maybe the market can absorb the losses more easily than it thinks.

What do you think? We want to know!





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Trader disclosure: On Sept 16, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT), (UUP): Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman Owns (GS); Finerman's Firm Owns (DVN), (GE), (MSFT), (NOK), (SUN), (TSO), (VLO), (PM); Finerman's Firm Is Short (XLF), (IYR), (IJR), (MDY), (SPY), (IWM); Finerman's Firm Owns (DNA) Calls ; Najarian Owns (AAPL) And (AAPL) Collar; Najarian Owns (AIG) And Is Short (AIG) Calls; Najarian Owns (MS) And (MS) Put Spread And Is Short (MS) Calls; Najarian Owns (NOK) And Is Short (NOK) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (TSO) Call Spread; Najarian Owns (WB) Put Spread; Najarian Owns (WM) And (WM) Puts; Najarian Owns (XLF) And (XLF) Collar

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