Reaction to AIG scaring others

WASHINGTON, March 18 (UPI) -- Outrage in Washington over American International Group Inc.'s bonus pay to executives could work for and against economic recovery efforts, sources said.

While the anger over AIG's $165 million paid in bonuses to current and former executives of a company up to 80 percent owned by the U.S. government could be a catalyst for regulatory reform, officials worry that other firms may be hesitant to take part in government bailout plans, The Washington Post reported Wednesday.

"Am I afraid of the populist outrage? Yes," Lynn Tilton, chief executive officer of private equity firm Patriarch Capital told the newspaper.

Sources said hedge funds feared retroactive anger in Washington that could force the return of compensation made before they accepted bailout support.

Sen. Robert Menendez, D-N.J., penned a a letter to Treasury Secretary Timothy Geithner Tuesday, claiming bonus pay at Morgan Stanley also deserved a firm response.

AIG, meanwhile, has claimed the bonus checks were mandated by contract.

"Why do you think Hong Kong is a better place to do business than Shanghai?" a private equity executive told the Post. "Because of the certainty of the contracts."

"Once the uncertainty factor goes up, the less interested you are in doing business because it becomes a more risky proposition," the executive said.