does anyone know how this works? i
f the bank is able to sell off its bad debt to the US rescue package - does that mean all those big write downs announced will return to the company as profits seeing as they will get the money back??

Depends on what price the toxic debt is bought in at by the US authorities. This is the problem because it will be necessary for some bright spark to come up with a valuation formula since, I gather, these toxics are a bit complicated. We will have to see but, at least in will bring and element of certainty and should free up the money markets.