The end of investment banking

After the bailout of insurance giant AIG fails to stem market fears, Morgan Stanley and Goldman Sachs, the only surviving independent investment banks on Wall Street now find themselves under threat. New missile attacks on Pakistan's tribal territories follow a US assurance to respect Pakistan's sovereignty. Tribal leaders warn that they are ready to join forces with al Qa'eda and the Taliban in opposing American forces.

"A further seismic reshaping of the global banking industry was taking place last night as Morgan Stanley and Goldman Sachs, the last two independent investment banks on Wall Street, suffered massive share price falls, fuelling expectations that they could be forced into a fire sale," The Times reported. "The banking industry reacted with shock as Goldman's shares tumbled by 14 per cent and Morgan's by 24 per cent. One source said that the share dive confirmed the worst fears of Morgan's senior management, convincing them that a sale of the firm was both inevitable and imminent." The New York Times said that Morgan Stanley "was considering a possible merger with the Wachovia Corporation or another bank, according to people briefed on the discussions. "A tie-up with a bank would restore Morgan Stanley to its structure during the Depression, when the firm split from the Morgan banking empire. It would also leave Goldman Sachs, long the envy of Wall Street, as the only major American investment bank left." Following the bailout of AIG, Nelson Schwartz asked: "Is the United States no longer the global beacon of unfettered, free-market capitalism? "In extending a last-minute $85 billion lifeline to AIG, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, it has also likely undercut future American efforts to promote such policies abroad. " 'I fear the government has passed the point of no return,' said Ron Chernow, a leading American financial historian. 'We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.' " In The Australian, Matthew Stevens wrote: "On September 7, US taxpayers stumped up $US200 billion to re-float, and take control of, the near-terminal mortgage twins Fannie Mac and Freddie Mac. "Now they have bailed out the world's biggest insurer. "Suddenly the great advocates of markets unfettered by government intervention are not so convinced by the old theory of moral hazard, that in free markets corporations should be allowed to fail. "No, that way is now too dangerous right now. Systemic threat and all that. "Instead, the talk around global financial markets right now is that the only balm to a broad systemic threat to global capital markets is deep vein intervention by the US Government." In The Washington Post, Robert J Samuelson concluded: "Wall Street as we know it is kaput. It is not just that Merrill Lynch agreed to be purchased by Bank of America or that the legendary investment bank Lehman Brothers filed for bankruptcy or that the insurance giant AIG is floundering. It is not even that these events followed the failure of the investment bank Bear Stearns or the government's takeover of Fannie Mae and Freddie Mac, the largest mortgage lenders. What's really happened is that Wall Street's business model has collapsed."

US reassures Pakistan over sovereignty - then launches another missile attack

"A suspected US missile strike killed at least six people Wednesday, hours after the top US military officer told Pakistani leaders that America respected Pakistan's sovereignty amid a furor over American strikes into Pakistan's northwest. "Two Pakistani intelligence officials told The Associated Press that several missiles hit a compound in the South Waziristan tribal region early Wednesday evening. Both officials spoke on condition of anonymity because they are not authorised to speak openly to the media." In Asia Times, Tariq Ali wrote: "The decision to make public a presidential order of July authorising American strikes inside Pakistan without seeking the approval of the Pakistani government ends a long debate within, and on the periphery of, the George W Bush administration. "Democratic presidential candidate Senator Barack Obama, aware of this ongoing debate during his own long battle with Senator Hillary Clinton, tried to outflank her by supporting a policy of US strikes into Pakistan. Republican Senator John McCain and vice presidential candidate Sarah Palin have now echoed this view and so it has become, by consensus, official US policy. "Its effects on Pakistan could be catastrophic, creating a severe crisis within the army and in the country at large. The overwhelming majority of Pakistanis are opposed to the US presence in the region, viewing it as the most serious threat to peace." Robert Baer, a former CIA field officer assigned to the Middle East, wrote in Time magazine: "You have to wonder whether the Bush administration understands what it is getting into. In case anyone has forgotten, Pakistan has a hundred plus nuclear weapons. It's a country on the edge of civil war. Its political leadership is bitterly divided. In other words, it's the perfect recipe for a catastrophe. "All of which begs the question, is it worth the ghost hunt we've been on since September 11? There has not been a credible sighting of Osama bin Laden since he escaped from Tora Bora in October 2001. As for al Qa'eda, there are few signs it's even still alive, other than a dispersed leadership taking refuge with the Taliban. Al Qa'eda couldn't even manage to post a statement on the Internet marking September 11, let alone set off a bomb. "US forces have been entering Pakistan for the last six years. But it was always very quietly, usually no more than a hundred yards in, and usually to meet a friendly tribal chieftain. Pakistan knew about these crossings, but it turned a blind eye because it was never splashed across the front page of the country's newspapers. This has all changed in the last month, as the Administration stepped up Predator missile attacks. And then, after The New York Times ran an article that US forces were officially given the go-ahead to enter Pakistan without prior Pakistani permission, Pakistan had no choice but to react." The Australian reported: "Leaders of an estimated 500,000 tribesmen who have so far remained largely neutral over the conflict in Afghanistan warned last night they were poised to support al Qa'eda and the Taliban unless US forces retreated from their strategy of attacking targets inside Pakistan. "In a major jolt to Washington's new policy of allowing cross-border raids in defiance of the Government in Islamabad, key tribal elders were reported to have met and warned that they were also prepared to raise an army to fight coalition forces in Afghanistan. " 'If America doesn't stop attacks in the tribal areas, we will prepare a lashkar (army) to attack US forces in Afghanistan,' Pashtun tribal chief Malik Nasrullah Khan was reported as saying in Miranshah, the largest town in North Waziristan, which has been the target of repeated US attacks in the past week. In Pakistan's The News, defense analyst Shireen M Mazari wrote: "It would appear that the wimpish political leadership, in the wake of the no-nonsense statements of the army and air chiefs, has finally reconciled to the fact that the nation could not continue to accept the expanding US military intrusions into Pakistan. Of course, Prime Minister Gilani continued to show his timidity in the face of the US by declaring that we could only deal with the US diplomatically, and Zardari has yet to make a comment on the issue, but eventually the Pakistani security forces took action against US forces seeking intrusion into Pakistan and their non-lethal firing sent the proper message to the would-be invaders. Equally comforting was the fact that the Wazir tribesmen actively supported the security forces - showing once again that when the state is in consonance with its people rather than with hostile external players, the people will show their support. "This is just the beginning of a new threat Pakistani is now going to face, given the noises coming out of the US - especially from its aspiring leadership. The Republicans have now got a religious extremist as their vice-presidential candidate so God help the Muslim world if the McCain-Palin ticket is successful. After all, if Palin sees Iraq as 'God's War', one can rest assured she will see other US invasions in a similar vein. As for Obama, he has been itching to have the US forces enter Pakistan since the time he began his campaign. So for Pakistan specifically, and for the Muslim world in general, the new US administration will offer no respite from the bigotry and extremism that dominates the American polity today. "Therefore, Pakistan has to be prepared to fight a dual terrorist threat - from the militants within our own polity and the state terrorism of the US that is now directly threatening Pakistan. That is why there has to be complete clarity and resoluteness on a rational national policy to combat these threats." Meanwhile, the situation in Afghanistan grows increasingly worse. Voice of America reported: "In a recent speech, the European Union's outgoing special representative to Afghanistan, Francesc Vendrell, said conditions there are the worst since 2001, when a US-backed force deposed the Taliban government. "New York University Professor Barnett Rubin, a leading expert on Afghanistan, agrees. He says Afghans are beginning to despair about whether the US and Nato troop presence will make a difference in their lives. " 'Right now is the time when there is the least hope since the Taliban were overthrown, the worst security, and the least belief by Afghans that actually this intervention is going to bring them a better future,' said Rubin." The New York Times reported: "Defense Secretary Robert M Gates on Wednesday sought to defuse growing tensions with the Afghan government over civilian deaths, expressing his 'sincere condolences' and promising speedier compensation and investigation after such incidents. "The statements by Mr Gates and the shift in policy provided a clear indication of American concerns about losing the support of the Afghanistan's people, its government and other nations for the mission here because of rising anger over an increasing number of civilian casualties. "This year is on pace to be the deadliest for civilians - more than 1,445 have been killed so far - since the Taliban was toppled by the American-led invasion in 2001. Just more than half those deaths, tallied by the United Nations, are attributed to insurgent forces." The Los Angeles Times said: "The commander of foreign troops in Afghanistan said Tuesday that he had issued new orders aimed at reducing the number of civilians accidentally killed in airstrikes and raids... "The issue of civilian deaths was thrown into sharp relief by a US-led raid in western Afghanistan last month in which 92 civilians were killed, according to United Nations estimates. The US military has said about seven civilians died, though it has begun a high-level review. "The incident deeply angered the Afghan government. President Hamid Karzai, who is to meet with Gates today, is expected to again press the issue."