THE US GOVERNMENT, which bailed out Fannie Mae and Freddie Mac a week ago and orchestrated the sale of Bear Stearns Cos To JP Morgan Chase & Co in March, played much tougher with Lehman. It REFUSED TO PROVIDE A FINANCIAL BACKSTOP TO POTENTIAL BUYERS.

Without such support, Barclays PLC and Bank of America, the two most interested buyers, walked away. On Sunday night, Bank of America struck a deal to buy Merrill Lynch for $29 a share, or about $44 billion. Lehman was working on a possible bankruptcy filing that would allow most of its subsidiaries to continue operating as the firm is wound down.

THOUGH IT STEERED CLEAR OF A BAILOUT, THE FEDERAL RESERVE IS EXPECTED TO TAKE NEW STEPS TO STABILIZE THE BROADER FINANCIAL SYSTEM. These steps, expected to be temporary, would make it easier for banks and securities firms to borrow from the central bank by using a wider range of collateral. Bankers say these financial institutions might need short-term funds as they unwind their many trading positions with Lehman.

"MONDAY WILL BE A DAY OF RECKONING FOR THE FINANCIAL MARKETS," said Carlos Mendez, senior managing director of ICP Capital, a boutique investment firm in New York. On Sunday, he said, "it was like a fire alarm went off and people ran in all directions."

Lehman, a 158-year-old firm that started as an Alabama cotton brokerage, and Merrill, with its trademark bull logo, have been pillars of Wall Street for much of the past century. WITH THE DEMISE OF BEAR STEARNS, THREE OF THE STREET'S FIVE MAJOR INDEPENDENT BROKERS COULD END UP DISAPPEARING, LEAVING ONLY GOLDMAN SACHS GROUP INC AND MORGAN STANLEY.

THE HUMBLING MOVES, WHICH RESHAPE THE LANDSCAPE OF AMERICAN FINANCE, mark the latest chapter in a tumultuous year in which ONCE-PROUD FINANCIAL INSTITUTIONS HAVE BEEN BROUGHT TO THEIR KNEES as a result of tens of billions of dollars in losses because of bad mortgage finance and real estate investments.

They culminated a weekend of frantic around-the-clock negotiations, as Wall Street bankers huddled in meetings at the behest of Bush administration officials to try to avoid a downward spiral in the markets stemming from a crisis of confidence.

It remains to be seen whether the sale of Merrill, which was worth more than $100 billion during the last year, and the controlled demise of Lehman will be enough to finally turn the tide in the yearlong financial crisis that has crippled Wall Street. Questions remain about how the market will react Monday, particularly to Lehman's plan to wind down its trading operations, and whether other companies may still falter, like the AMERICAN INTERNATIONAL GROUP, the large insurer, and WASHINGTON MUTUAL, the nation's largest savings and loan. Both companies' stocks fell precipitously last week.

Though the government took control of the troubled mortgage finance companies Fannie Mae and Freddie Mac only a week ago, investors have become increasingly nervous about the difficulties of major financial institutions to recover from their losses. What will happen to Merrill's 60,000 employees or Lehman's 25,000 employees remains unclear.

Their report will be published jointly on Tuesday by two think-tanks: the Centre for Social Justice which is chaired by Mr Duncan Smith; and the left-leaning Smith Institute, set up in memory of the late Labour leader John Smith. It will call for agreement from all parties on THE IMPORTANCE OF PROJECTS DESIGNED TO BOLSTER THE LIFE CHANCES OF CHILDREN WHO ARE LIVING IN DEPRIVATION, from the moment they are born.

YOUNG CHILDREN ARRIVE AT NURSERY SCHOOL UNABLE HARDLY TO SPEAK OR RELATE TO OTHER CHILDREN WITHOUT RESORTING TO VIOLENCE. Unless concerted action is taken, they warn that Britain will be "saddled with a new generation of disturbed and aggressive young people doomed to repeat and amplify the social breakdown disfiguring their lives and others around them".

Mr Duncan Smith writes that the "creeping expansion of the underclass" is sucking "decent" families into the "code of the street". He cites research suggesting that on more and more council estates, anti-social behaviour is regarded as the norm, and is spreading. Mr Duncan Smith also warns that council estates are increasingly becoming a ghetto for the poor, dominated by low-income, single-parent families living on benefits. "YOUNG CHILDREN SUFFER LIFE-LONG DAMAGE IN A WORLD WHERE THEY SIT IN FRONT OF THE TELEVISION ALL DAY, ENCOUNTER CONSTANT ANGER AND SHOUTING, AND WITNESS THEIR MOTHERS BEING ABUSED BY A BOYFRIEND".

Lehman had incurred losses of billions of dollars in the US mortgage market. The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman. Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America in a dramatic weekend of events for Wall Street.

The chance that Lehman Brothers could collapse increased sharply after the strongest potential buyers pulled out at the weekend. Greg Wood, the BBC's North America business correspondent, said that police had cordoned off the bank's headquarters in New York and staff were leaving with cardboard boxes as onlookers gathered to watch the bank's demise.

Of course, there are terrorists, and there are also fantasists, fanatics, low-lifes and camp followers who plot and attempt horrible things. Some of them even call themselves 'Al Qaeda' these days because they have learned that this is a good way to scare us. BUT, WHILE THEY ARE A MENACE, THEY ARE NOT AS BIG OR AS ORGANISED A MENACE AS THE GOVERNMENT LIKES TO MAKE OUT.

The State and the vainglorious bureaucrats of the 'security' services need to pretend that the terrorists are a tightly organised and terrifying threat, to make themselves look big as well – AND TO HELP THEM GET HOLD OF NEW POWERS TO SNOOP ON US AND PUSH US AROUND.

Unlike any French president in decades, Mr. Sarkozy sees a more open role for religion in French society. And he seized upon the conservative German pope's four-day trip to directly challenge French secularism, one of the most prized traditions of La République and a strict legal and cultural sanction against bringing matters of church and faith into the public realm.

Secularism, or laïcité, is central to the modern French identity. It's a result of hundreds of years of efforts to remove the influence of the Roman Catholic church from French institutions and reduce its moral authority. FRENCH MEDIA DON'T DISCUSS RELIGION. AT OFFICES OR WORK, MOST FRENCH BELIEVERS DON'T TELL COLLEAGUES THEY ARE GOING TO MASS OR CHURCH. IT IS SEEN AS A PRIVATE MATTER.

Yet here on Friday Sarkozy and his wife, Carla Bruni, broke protocol and met the pope at the airport. They hosted the pontiff at the Élysée Palace, attended a papal talk at a newly restored Cistercian monastery in downtown Paris in front of 700 intellectuals and artists – where Sarkozy openly argued that WHILE SECULARISM IS IMPORTANT, IT SHOULD NOT BE A HOSTILE FORCE THAT FORBIDS ALL TALK OF GOD, FAITH, AND TRANSCENDENCE. Sarkozy called for a "positive laïcité" that allows religion to help forge an ethical society.

The talismanic ex-central banker said that THE CRISIS WAS THE WORST HE HAD SEEN IN HIS CAREER, STILL HAD A LONG WAY TO GO AND WOULD CONTINUE TO EFFECT HOME PRICES IN THE UNITED STATES. "First of all, let's recognize that this is a once-in-a-half-century, probably once-in-a-century type of event," Greenspan said on ABC's "This Week."

Asked whether the crisis, which has seen the US government step in to bail out mortgage giants Freddie Mac and Fannie Mae, was the worst of his career, Greenspan replied "Oh, by far. There's no question that this is in the process of outstripping anything I've seen, and IT STILL IS NOT RESOLVED AND IT STILL HAS A WAY TO GO," GREENSPAN SAID.

"And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes". The former Federal Reserve chairman also predicted that the financial crisis would see the failure of more major financial institutions, even as embattled Wall Street investment giant Lehman Brothers scrambled to find a buyer.

The Civil Aviation Authority said K&S Travel, which also trades under the name Travel Turkey, had suspended operations which will affect about 550 people who are either on holiday already or due to depart shortly. The collapse follows that of XL Leisure Group, which grounded all its flights on Friday, stranding around 85,000 tourists in the United States, Europe, North Africa and the Caribbean.

The failure of London-based K&S will immediately affected about 150 tourists, most of them holidaying in the Turkish resort of Bodrum. When their holidays are over, the CAA said it would charter an aircraft to fly them back to Britain. A total of 400 travellers due to depart on holidays booked through K&S in the coming days have had their holiday plans dashed.

There are growing fears that high fuel prices and the credit crunch will force dozens more travel groups into liquidation. Some operators say the economic outlook is worse than after the September 11 attacks of 2001.

The Straits of Malacca, where the Indian Ocean joins the Pacific, is seen as China's Achilles heel. THESE SHIPPING LANES, VITAL FOR BEIJING'S ENERGY SUPPLIES, COULD BE THE SETTING FOR ANY FUTURE CONFRONTATION BETWEEN INDIA AND CHINA. The two giant powers are longstanding rivals, who share a disputed 2,100-mile border and are waging a diplomatic struggle for influence in Asia. They fought a border war in 1962, which ended in victory for China and left Beijing in control of 16,500 square miles of territory claimed by India.

Both countries are now increasing their defence budgets, with INDIA'S MILITARY SPENDING RISING BY AN AVERAGE OF 18 PER CENT in each of the last three years and now exceeding £15 billion.

If these tensions were ever to boil over into war once again, India would probably exploit a crucial advantage. Its navy, which eventually plans to deploy three aircraft carriers and two nuclear-powered attack submarines, would probably seek to close the Straits of Malacca to Chinese shipping. BY CUTTING OFF THE SUPPLY OF OIL, THIS COULD CRIPPLE CHINA AND PROVE THE DECISIVE MOVE IN ANY CONFLICT.

The Church of England will concede in a statement that it was over-defensive and over-emotional in dismissing Darwin's ideas. It will call "anti-evolutionary fervour" an "indictment" on the Church". The bold move is certain to dismay sections of the Church that believe in creationism and regard Darwin's views as directly opposed to traditional Christian teaching.

The apology, which has been written by the Rev Dr Malcolm Brown, the Church's director of mission and public affairs, says that Christians, in their response to Darwin's theory of natural selection, repeated the mistakes they made in doubting Galileo's astronomy in the 17th century. "The statement will read: Charles Darwin: 200 years from your birth, the Church of England owes you an apology for misunderstanding you and, by getting our first reaction wrong, encouraging others to misunderstand you still. We try to practise the old virtues of 'faith seeking understanding' and hope that makes some amends."

Opposition to evolutionary theories is still "a litmus test of faithfulness" for some Christian movements, the Church will admit. It will say that such attitudes owe much to a fear of perceived threats to Christianity. The comments are included on a Church of England website promoting the views of Charles Darwin to be launched on Monday.

Fannie and Freddie are - childish names and all - by far the biggest financial institutions ever taken over by the US government. Their bailout amounts to A STUNNING RETURN TO GOVERNMENT CONTROL OVER THE US FINANCIAL SYSTEM, incongruously led by a former Wall Street boss (Paulson) working in what is purportedly a conservative Republican Administration.

It's also yet another episode in a now year-old financial crisis that shows no signs of abating. Paulson's announcement briefly rallied stock markets around the world. But jittery investors kept running for the exits at Seattle-based thrift Washington Mutual and the investment bank Lehman Bros.

Fannie's and Freddie have long included the disclaimer that they are "not guaranteed by the United States." But both firms were creations of Congress and had access to a Treasury line of credit. As a result, Paulson said when he announced the takeover, "central banks and investors throughout the United States and around the world... believe them to be virtually risk-free." AND BECAUSE THE US GOVERNMENT CREATED THIS PERCEPTION, PAULSON FELT HE HAD LITTLE CHOICE BUT TO MAKE PERCEPTION A REALITY.

Sinlaku made landfall in coastal Ilan County in northeast Taiwan at 1:30 a.m. local time, but quickly turned away and headed back out to sea, the Central Weather Bureau said. "It's hanging around at the ocean near our coasts," said meteorologist Lee Hsiang-yuan. "It may move north, but we will not rule out another landfall on Taiwan."

Domestic flights were canceled, trains stopped running and several mountain highways were blocked by landslides, according to the Disaster Relief Center. The center warned that 55 rivers are prone to flash flooding and warned people living nearby to take precautions.

Sinlaku, named for a Micronesian goddess, is expected to move northeast toward Japan later Sunday, the bureau said. Typhoons frequently hit Taiwan between July and September, often causing casualties in mountainous regions that are prone to landslides and flash floods.

The Department of Energy estimated that 2.6 million customers in Texas and southern Louisiana lost power overnight as Ike came ashore at Galveston Island, 50 miles from Houston. Even before utilities could get helicopters in the air to survey the damage to transmission lines, officials said damage exceeded that of recent hurricanes.

Immediately after the storm, utilities reported nearly all customers had lost power as Ike's far-reaching footprint and wind force knocked out more facilities than Hurricane Alicia in 1983 and Hurricane Rita in 2005. Houston-based CenterPoint Energy reported most of its 2.2 million customers lacked power, with the power on only in downtown Houston, the Houston Medical Centre and InterContinental Airport - all areas served by underground power lines.

LeBlanc said 25 to 30 percent of the utility's transmission lines were knocked out of service with the most outages seen in the eastern and southern areas of the city, an area including the Houston Ship Channel, which is lined with refineries and petrochemical plants. "We have a big restoration effort ahead of us," LeBlanc said.

Evoking Cold War memories, Russia said this week it would send the missile-laden, nuclear-powered cruiser Peter the Great and other hi-tech ships for joint naval exercises with Venezuela scheduled for November. THE MANOEUVRES SHOW A RESURGENT RUSSIA FLEXING ITS MILITARY MUSCLE at a time of diplomatic tension with the United States after the Georgia war and over Washington's plans for a missile defence shield hosted by several former Soviet states.

For Chavez, the Russian visit serves notice to the United States that it no longer rules the waves around South America.

"UP TO TOMORROW (SUNDAY) WE HAVE GUARANTEED FLIGHTS, BUT NOT ON MONDAY BECAUSE NO-ONE WILL SUPPLY US WITH KEROSENE," Fantozzi reportedly said after summoning the nine unions for last-ditch talks to save the airline. He also warned that with no agreement he would be obliged to start the procedure for dismissing the crews of aircraft currently not being used by the company.

Investors who were prepared to put up one billion euros (1.4 billion dollars) to rescue Alitalia said Friday they were pulling out of negotiations, blaming union intransigence.