Treasury to unveil bank rescue bid soon

The toxic asset plan -- seen as vital to clear the way for the resumption of normal lending -- will seek to enlist private-sector support at an especially tough time.

The past week has seen uproar in Congress and the media over bonuses paid by publicly rescued AIG. Analysts warn that may make hedge fund managers and other managers of private wealth skittish about getting involved with the government.

ANGER OFF THE LEASH

"Congress is a rat's nest of grandstanding right now," said Jack Ablin, chief investment officer with Harris Private Bank in Chicago. "If Congress continues to dig its heels in, it will contribute to the destabilization of the financial system."

It remained unclear when Geithner, under fire himself for his role in failing to block AIG bonuses, will roll out his toxic asset plan. The Wall Street Journal said it could come as soon as Monday, but Treasury officials would not confirm that.

Indications were that Treasury would like to see the furor over AIG bonuses die down first.

A Senate aide told Reuters that Treasury officials had been consulting with lawmakers on the bonus legislation, trying to make it less restrictive so it would not scare companies away from taking part in bailouts and hedge funds from participating in the plan to buy up toxic assets.

Legislation taxing AIG bonuses passed the House this week. The Senate is expected to take up its version next week.

California Democratic Representative Brad Sherman, who sits on the House Financial Services Committee, was skeptical of the toxic asset plan.

"It looks like a scheme in which the taxpayer takes all the risk and the hedge funds get almost all the profits," Sherman told Reuters, adding it was not surprising the proposals were framed in such a way that they need not be put to a vote.

"I don't think Congress would vote for that," he said. "I think Wall Street would vote for that."

Geithner came under fire for not doing more to stop the bonus payments, obliging President Barack Obama to come to his defense twice in the past week -- doing so again in an interview to be shown on "60 Minutes" on Sunday.

Obama said in the interview that if Geithner tried to offer his resignation, he would tell him, "Sorry buddy, you've still got the job," according to transcripts of the interview.

(Reporting by Karey Wutkowski, with additional reporting by Rachelle Younglai, Kevin Drawbaugh, Susan Cornwell and Richard Leong in New York, writing by Glenn Somerville; Editing by Vicki Allen and Peter Cooney)