Dow falls below 7,000 for the first time since October 1997

As we have pointed out in the past, the Stock Market at times reacts emotionally...This morning is one of those times with it being reported that the Dow fell below 7,000 for the first time since 1997. Why? AIG.

AIG: AIG (AIG, Fortune 500), whose status as a Dow component may be in jeopardy, reported a worse-than-expected $61.7 billion loss for the fourth quarter of 2008.

The company blamed "severe credit market deterioration," particularly in mortgaged-back securities, as well as charges from ongoing restructuring activities.

In addition, the insurer and the government announced a restructuring of the $150 billion bailout agreement. Key components included the government's decision to commit another $30 billion to the firm in exchange for cumulative preferred stock, and an exchange of an existing $40 billion preferred shares stake for shares that more closely resembles common stock.

Shares of AIG were indicated to open up 10 cents at 52 cents, bucking the market-wide plunge.

Dave Rovelli, managing director for Canaccord Adams, said investors were unhappy with the government's $30 billion "donation" to AIG, because there are no expectations that the government will ever get its money back.

"How is [AIG] going to pay it back?" said Rovelli. "With what? There's no way in God's name that [the government] is going to recoup the money they've lent them."