AIG Firestorm Raises Alarm For Other Firms

By David Cho and Binyamin Appelbaum
Washington Post Staff Writers
Wednesday, March 18, 2009

The firestorm over bonuses paid by insurance giant American International Group has triggered alarm at other financial firms, threatening federal efforts to draw private investors into economic recovery programs.

It is a critical juncture for the Obama administration. Officials at the Federal Reserve and the Treasury Department are increasingly worried that the controversy could discourage investors from joining a new government effort to revive consumer lending as well as a separate plan that relies on private money to buy toxic assets from banks, sources familiar with the matter said. Treasury officials planned to outline that second program as early as this week.

The attack by lawmakers on AIG pay has provoked renewed complaints from some financial company executives that federal involvement in business decisions is making it difficult for struggling firms to return to profitability. In particular, executives say they need to offer bonuses to keep and motivate their most valuable employees and are already seeing an exodus of talent.

But lawmakers are outraged that many financiers continue to be rewarded despite their role in fueling the current crisis. Some on Capitol Hill say the financial industry should be smaller and its jobs less lucrative.

(More here.)