The Public-Private Investment Program, or PPIP, is already getting a facelift.

In response to mounting criticism that the latest government-backed attack on toxic assets is simply another way to transfer risk from banks to taxpayers, the Treasury Department announced plans to expand the program to smaller investors and service providers.

According to the Wall Street Journal, a firm must have at least $10 billion in eligible assets under management to qualify as a potential PPIP fund manager. The Treasury may relax these limits, which would make room for smaller players.

Treasury Secretary Tim Geithner’s plan has been harshly rebuked for handing out business to a few well-connected firms like Goldman Sachs (GS), BlackRock (BLK) and Pacific Investment Management Co., or PIMCO. These firms stand to earn huge fees managing assets; most hedge funds, valuation providers or asset managers are being locked out of the program.

Meanwhile, big banks like Citigroup (C), JPMorgan Chase (JPM) and Bank of America (BAC) are patiently waiting for both the PPIP and recently announced mark-to-market accounting changes to help clean up their balance sheets.

Toxic mortgage assets are either being dumped into exclusive, government-directed investment pools or left on balance sheets to be written up to higher values. As a result, vast quantities of capital -- raised to take advantage of distressed loans -- are now looking for a home. Investors -- enticed in by returns that looked too good to be true -- allocated tens of billions of dollars to buy non-performing loans, mortgage-backed securities, and a host of other so-called toxic assets.

Already at a disadvantage, competing against big firms using cheap government leverage to bid up prices, boutique distressed investors are fighting for an increasingly small piece of what remains a very, very large pie.