Will AIG Get Bailed Out?

After beginning the day with another sell-off, U.S. stocks recovered and started rising later in the trading day. The reason, apart from the usual technical tendency for stocks to rise after sharp declines because of the perception that they're at that point oversold, appears to be rumors that AIG will after all be bailed out by the Fed, in sharp contrast to the action it took on Lehman.

It remains to be seen whether this rumor is true or false. If false, then we will see another sharp sell-off. If true, then this will destroy most of the positive effect in reduced moral hazard that the refusal to bail out Lehman created.