Backfire: AIG-bashing may scare private investors away from troubled banks

Several industry executives, observing the pressure being exerted on AIG and other big banks, say they are worried about joining in government efforts to rescue the financial system in the newly charged political environment.

“Am I afraid of the populist outrage? Yes,” said Lynn Tilton, chief executive of Patriarch Capital, a private-equity firm that has weighed making such an investment.

A senior executive at one of the nation’s largest banks said he had heard from several hedge funds that they would not partner with the government for fear that lawmakers would impose retroactive conditions on their participation, such as limits on compensation or disclosure requirements…

“Why do you think Hong Kong is a better place to do business than Shanghai? Because of the certainty of the contracts,” said another executive at one of the nation’s largest private-equity firms. “Once the uncertainty factor goes up, the less interested you are in doing business because it becomes a more risky proposition.”