The Dow Jones industrial average lost about 450 points, giving it a shortfall of more than 800 so far this week. "PEOPLE ARE SCARED TO DEATH," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position? NO ONE'S GOING TO BE BELIEVING ANYBODY NOW because AIG said they were OK along with everybody else," Stone said.

He said the anxiety gripping the markets reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter. Over the past year, COMPANIES INCLUDING LEHMAN AND AIG HAVE SOUGHT TO REASSURE INVESTORS THAT THEY WEREN'T IN TROUBLE, but as market conditions have worsened the market appears distrustful of any assurances.

The two independent Wall Street investment banks left standing - Goldman Sachs Group Inc and Morgan Stanley - remain under scrutiny, as does Washington Mutual Inc, the country's largest thrift bank. Morgan Stanley revealed better-than-expected quarterly results late Tuesday and insisted that it is surviving the credit crisis that has ravaged many of its peers. "It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.

"PEOPLE ARE AFRAID OF THE UNKNOWN AND THEY DON'T KNOW WHAT'S ON THE BOOKS OF THESE COMPANIES," said Joe Saluzzi, co-head of equity trading at Themis Trading. "The first reaction in a situation like this is to sell." Saluzzi noted that surging gold prices and other measures of investors jitters indicate that anxiety is building.

The billionaire mayor spoke before an audience at Georgetown University, telling them it's not clear who is going to continue buying US debt as financial firms try to cope with a crisis of confidence on Wall Street. Before becoming mayor, Bloomberg made a fortune by launching a financial information company that bears his name, and he has more credibility than most politicians on economic matters.

Bloomberg said he was concerned that the credit crisis in the United States may scare off foreign investors that, until now, have been willing to buy debt that the US uses to maintain a deficit. "IT'S NOT CLEAR WHO'S GOING TO BE BUYING OUR DEBT," SAID BLOOMBERG. "IT MAY VERY WELL BE THAT THE NEXT WAVE IS GOING TO COME BACK AND BITE US."

"We have on both sides of the aisle, on both ends of Pennsylvania Avenue, thrown caution to the wind. We pay lip service to responsibility," he said, "The systemic problem is we've all gotten into a situation where we want it now, there's no pain... We keep saying we want to have it, we don't want to pay for it."

AS OF THIS MORNING, THE NATIONAL DEBT STANDS AT OVER $9.634 TRILLION. That's trillion - with a "T." And that's nearly $4 trillion more than it was on the day President Bush took office. This year alone, it's costing taxpayers more than $230 billion just to pay the interest on the national debt.

And it's getting bigger every day thanks to the relentless rush of the government spending money it has to borrow. The federal deficit for the fiscal year ending September 30 is expected in the range of $400 billion - close to the all-time high. IN FACT, THE GOVERNMENT DOESN'T HAVE THE $85 BILLION NEEDED TO BAILOUT INSURANCE GIANT AMERICAN INTERNATIONAL GROUP.

The treasury department announced this morning it would auction new debt to raise funds for the Federal Reserve's rescue plan for AIG. BUT WHERE DOES THE FEDERAL GOVERNMENT GO WHEN IT NEEDS A BAILOUT? TAXPAYERS NEED ONLY LOOK IN THE MIRROR.

Gold for December delivery rose as much as $90.40, or 11.6 percent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session. That was the biggest one-day price jump ever; gold's previous single-day record was a $64 gain on January 29, 1980. IN PERCENTAGE TERMS, IT WAS GOLD'S LARGEST ONE-DAY ADVANCE SINCE 1999.

The huge rally came after the government moved overnight to rescue troubled insurer American International Group Inc with an $85 million bailout loan. The Federal Reserve stepped in after AIG, teetering on collapse from losses tied to the subprime crisis and the credit crisis, failed to find adequate capital in the private sector.

The emergency measure came a day after Lehman Brothers Holdings Inc, a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer. Fearing more tightening of credit markets, investors reacted swiftly and began dumping stocks and socking money into gold, silver and other safe-haven commodities. GOLD IS ESPECIALLY ATTRACTIVE DURING TIMES OF CRISIS BECAUSE THE METAL IS KNOWN FOR HOLDING ITS VALUE.

Tuesday's surprise $85 billion rescue of insurer American International Group by the U.S. Federal Reserve did little to calm investors' nerves, and U.S. stocks dropped as much as 3.6 percent. The Fed move capped a week of bailouts, a bankruptcy on Wall Street, and central banks around the world flooding the financial system with money to prevent it from seizing up. THE RESULT: A SEISMIC SHIFT IN THE FINANCIAL INDUSTRY, WITH SOME OF WALL STREET'S BIGGEST NAMES DISAPPEARING OVERNIGHT.

"THE FEAR IS WHO IS NEXT," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "It almost feels like people scour the books and say who is the next likely target that we can put a short on. And that spreads continuous fear."

SHARES OF MORGAN STANLEY AND LARGER RIVAL GOLDMAN FELL AS MUCH AS 43 PERCENT AND 27 PERCENT, RESPECTIVELY, even after both reported better-than-expected quarterly earnings on Tuesday. "I'm assuming that Goldman Sachs and Morgan Stanley are lining up dancing partners. They don't want to be ... this week's victim," said William Larkin, fixed income manager at Cabot Money Management in Salem, Massachusetts.

The sight of highly-paid bankers being escorted off their premises with boxes full of possessions seems remote from our everyday lives - and for some people may even provoke feelings of satisfaction, a deserved comeuppance after a decade of City greed.

The loss of banking jobs will inevitably have a knock-on effect on the rest of the economy, and not just for the army of nannies, dog-walkers, car dealers and tradesmen who service bankers' lifestyles. A shrinking financial services sector, one of our biggest export industries, will add to downward pressure on the pound, driving up the cost of imports and impacting further on consumer prices.

The one bright development this week has been the effect of the crisis on global oil prices, which have slumped from their peak earlier in the summer. The falls should be felt at the pumps over the next few days. But it should not be seen as a harbinger of better times: the reason prices are falling is that global demand for oil is predicted to slump as the global economy slows. SLIGHTLY CHEAPER MOTORING WILL COME AS LITTLE RELIEF FOR MOTORISTS WHO NO LONGER HAVE A JOB TO DRIVE OFF TO.

Archbishop Gianfranco Ravasi, the Vatican's culture minister, was speaking at the announcement of a Rome conference of scientists, theologians and philosophers to be held next March marking the 150th anniversary of the publication of Darwin's "The Origin of Species". Earlier this week a leading Anglican churchman, Rev. Malcolm Brown, said the Church of England owed Darwin an apology for the way his ideas were received by Anglicans in Britain.

Creationism is the belief that God created the world in six days as described in the Bible. The Catholic Church does not read the Genesis account of creation literally, saying it is an allegory for the way God created the world. Some other Christians, mostly conservative Protestants in the United States, read Genesis literally and object to evolution being taught in biology class in public high schools.

The Catholic Church teaches "theistic evolution," a stand that accepts evolution as a scientific theory and sees no reason why God could not have used a natural evolutionary process in the forming of the human species. It objects to using evolution as the basis for an atheist philosophy that denies God's existence or any divine role in creation. It also objects to using Genesis as a scientific text. Pope Benedict discussed these issues with his former doctoral students at their annual meeting in 2006. In a speech in Paris last week, he spoke out against biblical literalism.

The Movement for the Emancipation of the Niger Delta (Mend) said it had destroyed Shell's Orubiri flow-station. A military spokesman confirmed the attack but there are no details on any casualties. This is the second major oil facility attacked this week. Attacks by militants have cut Nigeria's oil production by some 20% even before this week's upsurge.

Access to clean water is the most pressing issue, an official said. Power failures can idle purification plants for weeks, seawater can make water undrinkable, and pipes have often been contaminated with sewage or chemicals. Tainted water can cause diarrhoea and dehydration.

Officials need to attack the pests as soon as possible, said Richard Pollack, a mosquito researcher at Harvard University's School of Public Health in Boston. "Within a few days, if they don't do this, life is going to be fairly unbearable," he said. "It is a real problem. It is a quality-of-life issue. You can't tell if the mosquito landing on you or your child is infected or not." If unchecked, mosquitoes carrying diseases including West Nile virus could get out of control, he said.

Elsewhere along the Texas coast, entire towns were all but erased by Ike's storm surge. Ike has killed 41 people in 10 states, the Associated Press reported. Sanitation is going to be a problem in Galveston, with generators needed to pump out contaminated water, said David Paulison, chief of the Federal Emergency Management Agency.

Long-term housing will be the next challenge. "It's going to be a while before people can live in their homes," Paulison said today aboard Air Force One with Bush. Some residents may wait 18 months, Paulison said. "Residents who have evacuated, stay where you are," Governor Rick Perry said in a statement. "The worst thing that could happen is for people who are in a safe area where there is food, water and electricity to return to communities that have yet to have essential services restored."

The rescue follows the collapse of US investment giant Lehman Brothers, which caused share prices to plummet across the world's financial markets. Meanwhile, Barclays said it had reached a deal to buy Lehman's US investment banking and capital markets businesses. The $250m deal, which is subject to approval from the bankruptcy court, will make the British bank the third biggest investment bank in the US. Barclays will also purchase Lehman's New York headquarters and its two data centres in New Jersey for $1.5bn. THE RESCUE OF AIG - WHICH HAS A TRILLION DOLLARS IN ASSETS AND INSURES BANK LOANS AROUND THE WORLD - prompted a shares rally in Asia, with Japan's market up 2% in early trading.

The board of the Federal Reserve made the decision "with the full support of the Treasury Department", it said in a statement, adding that the secured loan included conditions designed to protect "the interests of the US government and taxpayers". Correspondents say the demise of AIG - which has policy holders in more than 100 countries and insures deals and investments across the globe - would have a far greater impact on financial markets than Lehman's collapse.

Were the company to fail, many banks and investment funds in the US and around the world would lose their insurance cover at a time when defaults on payments are likely to rise. The Governor of New York, David Paterson, said AIG had so many business interests it would be hard to predict how widespread its bankruptcy would have been felt. "Its tentacles go further in to the avenues of business, as in mortgages, as in credit, as in hedge funds, as in countless ways that affect consumers, that affect drivers, that affect homeowners, affect passengers," he said. AIG had posted losses in each of the last nine months

The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis. Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.

Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments. The rouble-denominated Micex Index closed 17.75 per cent down, the sharpest one-day drop since the August 1998 financial crisis, while the dollar-denominated RTS index closed down 11.47 per cent, its lowest level since January 2006.

Shares in Russia's biggest state-controlled banks led the slide with Sberbank, the state-controlled savings bank, closing 21.72 per cent down and VTB losing 29.26 per cent. The bank was suffered on investor fears about its securities portfolio, which makes up about 10 per cent of its assets.

New figures show that overall inflation has risen to 4.7 per cent this year but when only everyday goods are taken into account the rise in the cost of living is far higher, it has been revealed. THE COST OF SHOPPING BASKET ESSENTIALS IS RISING 25 PER CENT A YEAR, MailOnline's Cost Of Living Index for September shows. And as the bills grow, many families are investigating cheaper foreign destinations, a separate survey found.

Record numbers are leaving the UK to settle abroad. In the 12 months to June, 406,000 left to live overseas - the highest level since records began. Australia, Spain, America, New Zealand and France are among the most popular destinations.

Halifax Bank of Scotland saw another 14 per cent wiped off its value on the London Stock Exchange on another day of panic as markets worldwide continued to plunge. It comes on top of a fall of almost 18 per cent yesterday in the wake of U.S. investment bank Lehman Brothers going bust and Merrill Lynch announcing a cut-price takeover. Some £4 billion has been wiped off the company's value since Monday morning despite its insistence it is still a 'strong bank'.

News that U.S. investment bank Lehman Brothers (LEH.N: Quote, Profile, Research) had filed for bankruptcy protection sent stocks reeling worldwide, with banks bearing the brunt as investors braced for more pain across the sector.

"LEHMAN BROTHERS HAS PROVEN THAT THE BAR FOR THOSE 'TOO BIG TO FAIL' HAS JUST BEEN RAISED," said Paul Niven, head of asset allocation at UK fund manager F&C. "The short term will be tough for equities and credits and there is a good chance of further downside in prices in coming days."

Barclays, the UK bank that pulled out of emergency talks to save Lehman over the weekend, is in talks to buy the investment bank's core U.S. broker-dealer business, people familiar with the matter told Reuters on Tuesday.

But concerns intensified that AIG, once the world's largest insurer by market value, could be the next victim after a ratings downgrade, causing a rout in stock markets already battered on Monday after Lehman sought bankruptcy protection. Shares in AIG plunged nearly 61 percent on Monday and the U.S. Federal Reserve hired investment bank Morgan Stanley to review options for the firm, a person familiar with the situation said on Monday. AIG HAS LOST 92 PERCENT OF ITS VALUE THIS YEAR. But markets focused on AIG's ratings downgrade, which could force it to post more collateral and nullify insurance contracts, possibly setting in motion a chain reaction that could threaten its survival.

"You don't just have a potential impact on the reinsurer side, you have it on the institutions that might be holding AIG paper," said Lorraine Tan, director of research for Asia at debt rating agency Standard and Poor's in Singapore. "THIS WOULD HAVE A MUCH BIGGER IMPACT THAN A BANK GOING DOWN like Lehman or Bear (Stearns) or even a Wachovia or WaMu in the U.S. AIG has a much bigger presence globally. Their reach to a global customer base is quite sizable," she said.