How to turn $1.40 into 43 cents

Dear Congressman,

It appears AIG has even more magic up it derivative riddled sleeve as they have again demonstrated to the financial world their keen insight into how market capitalization works.

Due to problems AIG encountered by overextending their risk portfolio in credit default swaps and subsequent dilution of value by handing 80% of the company over to Uncle Sam for enough liquidity to survive the numerous collateral calls, their stock price was trading at a measly $1.40, with 2.6 billion shares outstanding, giving them a market value of around $3.6 billion.

With me so far?

So the geniuses at AIG say "hey, we want our share price higher, so we can start turning around the public perception that we have no idea what we are doing. "

So they decide to do a financial trick known as a reverse split, giving share holders 1 share for every 20 that they currently hold, so the equation is now changed to $28 per share with 130 million shares outstanding, giving them a market value of around $3.6 billion.

Pretty neat trick, huh?

Unfortunately for AIG, every hedge fund manager on the planet saw what they were doing and said "they are trying to create the perception of value where there is none! I sense an opportunity!!!"

So since news of the split occurred, the value of the shares have plunged like Thelma and Louise... and is now opening this morning at around $8.85.

So in 10 days, AIG's management has turned a $3.6 billion company into a $1.15 billion dollar company.

All I can say is.... well done!!!