Lets take them one at a time. AIG rose after the announcement last night that the feds' $85 billion liquidity facility is a done deal. There will not be a private-equity effort, and the stock should go down big. It would be down big if it could be shorted. First of all, AIG had made commitments far in excess of its capital, maybe by a factor of 10 to 1. That means the federal government will lose a fortune on this deal if the plan isn't approved, because AIG foolishly guaranteed a huge number of CDOs both here and abroad, and if the Paulson plan fails, this stuff could be worth next to nothing or nothing if it is home equity. Maybe it would be worth the 6 cents on the dollar at which Merrill Lynch (MER) sold it to Lone Star. Maybe not. The AIG deal situation is a frightening one, because all of their deals were based on evading capital requirements by wrapping AIG around insurance these instruments. They had no idea what they were doing. This one is totally worthless without the plan and is probably worthless even with the plan. It is a total sale.

Fannie and Freddie are also going up because they can't be shorted. This one's rough, because Fannie and Freddie's portfolios stand to gain big if the plan succeeds, so there is no doubt some trading upside here. But again, this common stock is not meant to advance. The common stock is meant to be a loser. So you are betting on a plan approval and then a sale, as there is so much paper ahead of the common. Still, I like this as a cheap call on the approval, not on Fannie and Freddie themselves. That is an important distinction. However, as the stocks go up, as they are doing today, the less likely a big gain will be, as the buyers now will flip the heck out of if the plan succeeds.

Fannie and Freddie are also going up because they can't be shorted. This one's rough, because Fannie and Freddie's portfolios stand to gain big if the plan succeeds, so there is no doubt some trading upside here. But again, this common stock is not meant to advance. The common stock is meant to be a loser. So you are betting on a plan approval and then a sale, as there is so much paper ahead of the common. Still, I like this as a cheap call on the approval, not on Fannie and Freddie themselves. That is an important distinction. However, as the stocks go up, as they are doing today, the less likely a big gain will be, as the buyers now will flip the heck out of if the plan succeeds.

The really nutty one is Washington Mutual. If the plan passes, it is possible that someone will pay a discount to the company's stock or even to it. I cannot think of any institution that would like to pay a premium, because this company cannot fund itself much longer. I think its upside is extremely limited. On the other hand, its downside is zero. This one's not a tough one financially, but it is proving irresistible to players. It is possible that TPG comes back and pays something for the rest under the plan. Again, though I do not know why it has to be done at a premium. The alternative, of course, is that it goes under, and then the legislation passes and it is a carcass worth nothing.