Financial crisis becomes the focus of the US presidential race

"This week's financial shocks have given Barack Obama an unexpected opportunity to regain some of the momentum that was lost in the aftermath of John McCain's convention and the excitement over Sarah Palin," wrote Dan Balz in The Washington Post. "How will he respond? "His immediate reaction to the financial trauma that swept Wall Street and Main Street on Monday was to mock McCain for suggesting that the economic fundamentals are sound. 'What economy is he talking about?' the Illinois Democrat exclaimed in Colorado. "Obama believes one strategy is to paint McCain as out of touch with the lives of middle-class families. Polls show the public already believes Obama is the more empathetic of the two candidates and more attuned to their everyday problems, and anything McCain says that reinforces the impression that he is out of touch will draw a sharp response from Democrats." Michael Cooper wrote: "Senator John McCain, who was criticised by Democrats Monday for saying that the fundamentals of the economy were strong on a day that the bankruptcy of Lehman Brothers and the sale of Merrill Lynch sent stocks plunging, went out of his way Tuesday to make it clear that he understood that Wall Street was in 'crisis.' "At a rally [in Tampa, Florida], Mr McCain vowed to take aim at what he called the 'unbridled corruption and greed that caused the crisis on Wall Street.' "Mr McCain - who has said for months that he believes that the fundamentals of the economy are strong - has used the word 'crisis' a lot on the last day to describe the financial situation. He did so in a series of television interviews Tuesday morning, where he called for the creation of a commission to study the problem, along the lines of the commission that investigated the Sept 11 attacks." The New York Times reported: "To the extent that travails on Wall Street and Main Street have both corporations and homeowners looking to Washington for a hand, that helps Mr Obama and his fellow Democrats who see government as a force for good and business regulation as essential. Yet Mr McCain has sold himself to many voters as an agent for change, despite his party's unpopularity after years of dominating in Washington, and despite his own antiregulation stances of past years. "Mr McCain was quick on Monday to issue a statement calling for 'major reform' to 'replace the outdated and ineffective patchwork quilt of regulatory oversight in Washington and bring transparency and accountability to Wall Street.' Later his campaign unveiled a television advertisement called 'Crisis,' that began: 'Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it. Tougher rules on Wall Street to protect your life savings.' "Mr McCain's reaction suggests how the pendulum has swung to cast government regulation in a more favorable political light as the economy has suffered additional blows and how he is scrambling to adjust. While he has few footprints on economic issues in more than a quarter century in Congress, Mr McCain has always been in his party's mainstream on the issue." In a commentary that focused on the US treasury secretary's role in handling the crisis, Anatole Kaletsky wrote in The Times: "The real economy and the world of finance can easily move in opposite directions. Most of the truly imprudent borrowing and lending of the past few years has occurred within the financial sector, with one bank or hedge fund lending insane amounts of money to another. Much of this debt could, in principle, be wiped away without affecting anybody apart from the financiers who were riding this crazy merry-go-round - and that has been pretty much the story of the past 12 months. Tens of thousands of jobs have been lost in Wall Street and the City, but the impact beyond that has been quite modest, except on property values and some of the luxury goods and services previously bought by these millionaires. "The past few days' events, however, have raised two alarming qualifications to this generally reassuring story. The first is that the decoupling between financial and economic conditions that I have been expecting - and which has broadly happened - can only be a matter of degree. The non-financial economy can shrug off a certain amount of bloodletting in the City and Wall Street, but if the turmoil escalates to the point where a country's entire financial structure starts collapsing, the consequences are bound to be dire for non-financial businesses and jobs. "This tipping point has not yet been reached in America or Britain. But it suddenly seems perilously close - with stock market prices plunging on Monday to the point where serious questions could be raised for the first time about the viability of key financial institutions such as AIG, Citibank and Bank of America, or of UBS in Switzerland or of Halifax, Royal Bank of Scotland and Barclays in the UK." The Times' US editor, Gerard Baker, having reviewed the financial crises of recent years that seemed to result in no lasting harm, asked: "Is there any reason to think that the latest bout of knuckle-chewing and ledge-leaping on Wall Street and in the City is really going to make much of a dent in our prosperity? "It is too soon to offer a definitive answer as far as yesterday's traumatic events are concerned but, for the broader financial disruption that gave rise to them, it seems that this time it really is different. "The first point to note is that, in all those previous phantom disasters, much worse outcomes for the real economy were avoided by timely policy responses by central banks and governments. It is surely the case that the extraordinary measures taken by the Federal Reserve, the US Treasury, the European Central Bank and, belatedly, by the Bank of England, have helped to shield the broader economy from worse damage. "The scale of the financial problems this time, though, is greater than in the past and its consequences are being felt more directly by individuals. The worst is certainly not over, and it is not clear there is much more that the authorities can do." In The Guardian, the Nobel prize-winning economist, Joseph E Stiglitz, wrote: "Most economists believe we have the monetary and fiscal instruments and understanding to avoid collapse on [the scale of 1929]. And yet the IMF and the US treasury, together with central banks and finance ministers from many other countries, are capable of supporting the sort of 'rescue' policies that led Indonesia to economic disaster in 1998. Moreover, it is difficult to have faith in the policy wherewithal of a government that oversaw the utter mismanagement of the war in Iraq and the response to Hurricane Katrina. If any administration can turn this crisis into another depression, it is the Bush administration. "America's financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing - for instance creating products that help Americans manage critical risks, such as staying in their homes when interest rates rise or house prices fall - and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system - toxic mortgages and the practices that led to them - were exported to the rest of the world."

Pakistan seeks British support in opposing American incursions

"Britain agrees that US cross-border incursions by US forces into Pakistan 'didn't help,' Pakistani President Asif Ali Zardari said Tuesday, as he sought London's help in a simmering row with Washington," AFP reported. "Speaking after talks with Prime Minister Gordon Brown, he said Britain had a better understanding of Pakistan than other countries, and voiced hope Brown could influence others. " 'He's very much aware and he understands Pakistan's situation, and the fact that he wants to help the democracy - and the situation doesn't help democracy - I think answers it,' he told reporters after the talks in London." The New York Times reported: "The chairman of the Joint Chiefs of Staff, America's top military official, made a hastily arranged visit to Pakistan on Tuesday for talks about a recent incursion by American commandos based in neighboring Afghanistan. "The visit by the chairman, Adm Mike Mullen, came as an uproar continued to grow in Pakistan about the incursion on Sept 3, which severely strained relations between the United States and Pakistan, its top Muslim ally in the war against terrorism. The visit also coincided with conflicting accounts about a possible second American raid on Monday, as well as a warning by the Pakistan military that it would shoot at any foreign forces who crossed the border. "A Pakistani military spokesman, Maj Gen Athar Abbas, said the army reserved the right to use force to defend the country and its people, but he said there was 'no change in policy'."

Scepticism grows over Saakashvili's charge that Russia started the war in Georgia

Der Spiegel reported: "Last week German Foreign Minister Frank-Walter Steinmeier publicly called for clarification on the question of who is to blame for the Caucasus war. 'We do need to know more about who bears what portion of the responsibility for the military escalation and to what extent,' Steinmeier told a meeting of Germany's more than 200 ambassadors in Berlin. The European Union, he said, must now 'define our relations with the parties to the conflict for the medium and long term,' and that the time has come to have concrete information. "Much depends on the clarification of this question of blame. After this war, the West must ask itself whether it truly wants to accept a country like Georgia into Nato, especially if this means having to intervene militarily in the Caucasus if a similar conflict arises. And what sort of partnership should it seek in the future with Russia, which, for the first time, has now become as insistent as the United States on protecting its spheres of influence? "The attempt to reconstruct the five-day war in August continues to revolve around one key question: Which side was the first to launch military strikes? Information coming from Nato and the Organisation for Security and Cooperation in Europe (OSCE) now paints a different picture than the one that prevailed during the first days of the battle for the South Ossetian capital Tskhinvali - and is fueling the doubts of Western politicians." The New York Times reported: "The West should not use Georgia's conflicts with the Russian-backed breakaway enclaves of South Ossetia and Abkhazia as an excuse to keep Georgia out of Nato, the United States ambassador to the alliance said Monday. "The Nato charter stipulates that potential members must resolve outstanding border issues before joining, which could block Georgia's aspirations. But the American ambassador, Kurt Volker, said in an interview that allowing Russia's actions to affect Georgia's chances of joining the alliance would be tantamount to the West's 'giving Russia a veto over Georgia's future.' "In a two-day visit [to Tbilisi], the Nato secretary general, Jaap de Hoop Scheffer, and ambassadors from the 26 member nations inaugurated a Nato-Georgia commission, which Georgia hopes will help clear a path for its eventual membership."