Goldman Sachs (NYSE: GS) shares have plunged the most ever after a government rescue plan for American International Group failed to ease credit concerns. Many attribute the movements to rumors and fears, but these same factors have arguably led to problems in the first place. The big fear in this case relates to the $62 trillion credit default swaps market where Goldman Sachs has become a large player. The concern is that insurers that wrote the swaps won't be able to make good on their contracts.

Credit default swaps are essentially insurance policies again a credit default - that is, the possibility that a company won't make good on its debts. The seller of the swap - or policy - gets a regular stream of premium income. In return, the seller of the swap agrees to pay the buyer if the company goes broke or stops paying its debts for some other reason. Interestingly, the market for swaps is estimated at $62 trillion compared to just $6 trillion in underlying bonds.

Companies like AIG provided these insurance policies on bonds and their troubles are causing concern that the policies won't be honored. Investment banks like Lehman Brothers and Goldman Sachs rely on these policies to balance the risk of the bond portfolio. The government's bailout of AIG has also caused rumors that some policies won't be honored or that there may be other delays in the issuance of these insurance policies that are now needed more than ever before.

As a result, shares of Goldman Sachs are trading lower despite an extremely positive earnings report in which it announced a sharp reduction in leveraged loans.

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Longs Drug Stores (NYSE: LDG) is finding itself under substantial pressure from shareholders to conduct a more comprehensive sale process after agreeing to be boughtout by CVS. Shareholders demanded that the company hire an independent advisor, solicit offers from all interested parties, and recommend the bets offer to the board and shareholders. These shareholders believe that the current $71.50 per share offer substantially undervalues the company given Walgreen's $75 per share bid.

Some shareholders, including Pershing Square, believe that the real estate value alone exceeds the price offered by CVS. The conservative valuation used by this hedge fund pegs the value at $2.9 billion or more and suggests that the company could sell for as much as $90 a share. Risk Metrics Group also recommended shareholders vote against the merger, citing concerns over Long's failure to disclose more information concerning its real estate portfolio.

Longs responded saying it would evaluate the offer by Walgreens but still recommended that shareholders accept the tender offer by CVS. The company had previously held talks with Walgreens, but they failed over price, according to SEC filings. The company also noted that Walgreens offer may be stuck with antitrust concerns. However, shareholders contend that the very fact this offer came in after CVS' tender means the process was badly flawed.

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American International Group Inc. (NYSE: AIG) shares fluxuated wildly throughout the day as investors speculated on the future of the insurance giant. Many experts believe that the firm is simply too large to fail as its securities are held by many hedge funds and other large players in the international markets. This led many to speculate that the Federal Reserve would rescue the firm if private investors failed; however, there are many other options also on the table keeping shares alive.

One popular theory is that Hank Greenburg, former CEO of AIG, may attempt to take control of the company through a proxy fight or buyout. The investors are also reportedly considering the acquisition of AIG's subsidiaries or making loans to the company. Many are aware that AIG was once Hank's baby before it was taken away and now destroyed- he may use this opportunity to retake control and attempt to save it. Indeed, the former executive already controls 11 percent of the bank.

Meanwhile, many experts are confident that the Federal Reserve will prove to be a backstop incase of any problems. CNBC reported that the Fed was considering providing financing and managed to help shares off of their lows of the day. However, the Fed itself could not provide any further comments on the matter. Others remain convinced that the Fed will not offer help after it jilted Lehman Brothers just yesterday.

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