Geithnermania: Treasury set to unveil plan for toxic assets

Whether these programs will work as anticipated depends in part on how Wall Street investors react to the AIG furor this week. Congress is moving to clamp down on anyone receiving financial aid by severely taxing bonus payments.

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More broadly, investors have become leery about signing on to government programs for fear Congress will abruptly change the rules. Hedge funds, for example, which stand to make sizable profits from participating, worry they won’t be able to keep their gains if the mood swing further against Wall Street.

Bankers are already expressing anger at Congress’s moves. In a letter to employees Friday, Kenneth Lewis, Bank of America Corp. Chief Executive, said that Congress’s proposals to clamp down on bonuses “have the potential to damage the ability of the government to engineer a financial recovery.” Several of the government’s plans, he wrote, “depend on the private sector being willing to contract with the government. If investors or companies in the private sector believe that the rules can change quickly and indiscriminately, they will be unwilling to participate.”…

The plan might be the administration’s best chance to make a big impact on the financial crisis. With bailout fatigue running high, the chances of Congress proffering more funds beyond the $700 billion authorized last fall are close to zero in the short term, lawmakers say. The Treasury instead will likely have to rely on the Fed, FDIC and private investors.

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