The defeat of the financial rescue package in the US congress exposes the limited influence of the president, congressional leaders, and the presidential candidates even as each issue dire warnings about the American economy. In Europe the collapse of three big lenders raises concerns over a domino effect across global banks. Conflicting statements from the Afghan government and the Taliban follow a report on a Saudi-sponsored secret 'peace process.'
Power vacuum in Washington
"At 7.34am [on Monday], President Bush strode onto the south driveway of the White House and urged Congress to approve his $700 billion Wall Street rescue package. 'With the improvements made to this bill, I'm confident that members of both parties will support it,' he predicted," The Washington Post reported. "Less than seven hours later, the plan had gone down to a stinging defeat in the House, in large part the result of opposition from more than 100 members of Bush's Republican Party. "The vote marked the biggest legislative defeat of Bush's tenure and underscored the vanishing influence of a president who could once bend a pliant Congress to his will on wars, taxes, surveillance and a host of other high-profile initiatives. CNN said: "The House's failure to pass a $700 billion bailout package Monday not only held back billions for Wall Street, but also was a major blow to Sen John McCain's presidential campaign. "The Republican presidential nominee raised the stakes for himself last week when he suspended his campaign and returned to Washington for negotiations over a solution to the financial crisis. "'Even before the House vote, voters blamed Republicans more than Democrats for the crisis. Then McCain suspended his campaign to come back to Washington to rally support for a rescue plan,' said Bill Schneider, a CNN political analyst. 'He failed, so he gets blamed by both supporters and opponents of the rescue plan.' "During a campaign event in Des Moines, Iowa, on Tuesday, McCain appeared to distance himself from Monday's House vote, saying the congressional inaction had 'every American and the entire economy at the gravest risk.' "'Yesterday, the country and the world looked to Washington for leadership, and Congress once again came up empty-handed,' he said." The Washington Post reported: "Sen Barack Obama, initially only a reluctant supporter of a Wall Street rescue agreement Congress reached over the weekend, has shifted to aggressively pushing passage of the bill, describing a nightmare scenario in which 'thousands of businesses could close around the country, millions of jobs could be lost, a long and painful recession could follow' without it. "'We must act and we must act now,' Obama told thousands at the University of Nevada at Reno. 'We cannot have another day like yesterday. We cannot risk another week or another month where American businesses are afraid to extend credit and lend money.' "'For the rest of today and as long as it takes, I'll continue to reach out to leaders in both parties and do whatever I can,' Obama said. 'To the Democrats and Republicans who opposed this plan yesterday, I say - step up to the plate and do what's right for this country.' " "Most Americans see the current financial situation as a 'crisis,' and there is overwhelming concern that the failure of the House of Representatives to pass the economic recovery package will deepen the problem, according to a new Washington Post-ABC News poll. "But the poll also revealed significant public concern with the bill Congress rejected yesterday, as few voters said the package did enough to protect 'ordinary Americans,' and nearly half said it did not go far enough to shore up the nation's economy. "Nevertheless, nearly nine in 10 expressed concern that the failure of the bill could lead to a more severe economic decline, including a slim majority calling themselves 'very worried.' High levels of concern cross party lines, but Democrats and Republicans have contrasting views of the urgency of the situation. In the poll, 60 per cent of Democrats call the economic woes a crisis, compared with 44 per cent of Republicans." Steven Pearlstein wrote: "Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system. "Politicians worry less about preventing a financial meltdown than about ideology, partisan posturing and teaching people a lesson. Financiers have yet to own up publicly to their own greed, arrogance and incompetence. And leaders of foreign governments still think that this is an American problem and that they have no need to mount similar rescue efforts in their own countries. "In the coming weeks and months, all of these people will come to understand how deep the hole really is and how we're all in it together. "They'll come to understand that the giant sucking sound they hear is of a massive deleveraging of the global economy and the global financial system as households, governments, businesses and investment funds adjust to living in a world with less debt and more inflation. "And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalise large swaths of the financial system so it can be restructured, recapitalised, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet." The Los Angeles Times said: "If the House vote against the $700-billion financial rescue proposal stands, Americans may be in for a test of free-market economics the likes of which the country hasn't seen since the early 1930s. "With the Treasury Department hobbled by the rejection of its plan, the Federal Reserve and Federal Deposit Insurance Corporation are the chief government institutions standing between the nation and the brutally Darwinian process that could unfold if the panicky financial markets are left to sort their problems out alone. "It's an open question whether those two institutions acting alone have the resources and power to avert such a debacle - the cascading failure of hundreds, perhaps thousands, of financial institutions and paralysis spreading across the whole economy. "'We're entering a new phase of the crisis,' said Chris Rupkey, chief financial economist with the Bank of Tokyo-Mitsubishi in New York. 'If you don't stop the domino effect, you're going to see one institution after another after another going down,' he predicted. "That's something the United States last experienced in the early 1930s, when Herbert Hoover was in the White House. Some conservatives believe that's still the best long-term solution to the problem, though none has gone so far as Hoover's Treasury secretary, Andrew Mellon, who said: 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.... It will purge the rottenness out of the system.' "But House members and their supporters who insisted Monday that the government had no business staging a massive intervention in the financial marketplace were essentially making a modern-day argument for the laissez-faire economic policies of the Mellon era." The Christian Science Monitor reported: "Europe had no time Monday to monitor the US attempt to bail out its banking sector. It was frantically dealing with new leaks in its own financial boat. "The collapse of three big lenders in Britain and Western Europe amplified concern over a domino effect across global banks, and gave rise to a new key question: Will Europe follow America's lead in underwriting its teetering banking sector? "In effect, it already has on a case-by-case basis. Governments in Britain, Belgium, the Netherlands, and Luxembourg were forced to intervene Monday to rescue banks, plowing billions of taxpayers' dollars into two failing institutions. "The part-nationalisation of the Dutch-Belgian Fortis and Britain's eighth-largest bank, Bradford and Bingley, demonstrated that Europe's leaders are no less resolute than their American counterparts when it comes to bank rescues, and even the expectation of Congressional approval of a $700 billion US bailout (which failed to pass Monday afternoon) did not helped bank balance sheets." In the Financial Times, Gideon Rachman wrote: "The great Wall Street meltdown is a huge economic and financial event. But might it also signal a historic shift in global politics - a moment that both marks and accelerates the decline of American power? "I have just spent the past two weeks in China and India - and it is clear that the thought has occurred to many people there. Whatever the long-term economic impact on Asia of America's financial crisis, a psychological shift is already evident. "The success of the Beijing Olympics in August and the failure of Wall Street in September has been a boost to Chinese self-confidence. "Pan Wei, director of the Center for Chinese and Global Affairs at Beijing university, mused aloud to me that: 'My belief is that in 20 years we will look the Americans straight in the eye - as equals. But maybe it will come sooner than that. Their system is in chaos and they need our money to rescue them.' "
"Afghanistan's foreign minister on Sunday declined to confirm a report that said the government was in contact with Taliban insurgents to negotiate an end to the conflict," Reuters reported. "Britain's Observer newspaper on Sunday said the 'unprecedented talks' involved a senior ex-Taliban member traveling between Kabul, the bases of the Taliban senior leadership in Pakistan, Saudi Arabia and European capitals. "'I cannot say anything about the matter that talks between the Taliban and Afghans ... are going on,' Foreign Minister Rangeen Dadfar Spanta told a news conference when asked to comment about the report. "'I deny there is any contact between the Foreign Ministry and the Taliban about the negotiations,' he said when asked for elaboration. The New York Times said: "President Hamid Karzai said Tuesday that he had sought help from the Saudi royal family for the last two years to bring the resurgent Taliban to peace negotiations. "Mr Karzai was delivering a message to Afghans marking the Muslim holiday of Id al-Fitr, which ends the month of Ramadan. Standing in the grounds of the presidential palace, he said Afghan envoys had been to Saudi Arabia and Pakistan but were unable to start negotiations with the Taliban. "'The reality is that for the last two years, we have been sending letters and messages to the king of Saudi Arabia,' Mr Karzai said, 'and we had urged him as a leader of the Islamic world - for us he is considered as leader of the Islamic world - to help us for security, peace and reconciliation in Afghanistan and for good relations in the region.' In Asia Times, Syed Saleem Shahzad reported: "This week, the Taliban officially rejected a Saudi Arabian-British backdoor initiative to strike peace deals with the militants... Back-channel efforts to strike deals with the Taliban and create a wedge between them and al Qa'eda have been going on since September 11, 2001. "However, for the first time, the Taliban have reacted very strongly against such efforts."