"Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms," Dana Perino, President George W. Bush's spokeswoman, said in a carefully nuanced statement released minutes before the financial markets opened in New York. "However, given the current weakened state of the U.S. economy, we will consider other options if necessary - including use of the TARP program - to prevent a collapse of troubled automakers."

TARP is the Troubled Assets Relief Program, the official name of the Treasury's financial rescue program, originally intended to assist banks. The Treasury Department promptly indicated that it would provide short-term relief to the automakers. "Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," said a Treasury spokeswoman, Brookly McLaughlin.

Referring to the carmakers, the White House statement said, "A precipitous collapse of this industry would have a severe impact on our economy. IT WOULD BE IRRESPONSIBLE TO FURTHER WEAKEN AND DESTABILIZE OUR ECONOMY AT THIS TIME." The statement indicated that Bush was prepared to capitulate on his objection to using the bank bailout funds to stave off imminent bankruptcy filings at General Motors and Chrysler and possibly Ford in the future.

Federal agents arrested Madoff at his apartment on Thursday after prosecutors said he told senior employees that his money management operations were "all just one big lie" and "basically, a giant Ponzi scheme." Prior to Madoff's arrest, investors had wondered how he was able to generate annual returns in the low double digits in a variety of market environments. Many questioned how U.S. regulators were able to ignore numerous red flags with regard to Madoff's operations. "MANY OF US QUESTIONED HOW THAT STRATEGY COULD GENERATE THOSE KINDS OF RETURNS SO CONSISTENTLY," said Jon Najarian, an options trader who knows Madoff and is a co-founder of optionmonster.com. Madoff's SONS TURNED HIM IN FOR RUNNING WHAT THEY SAID THEIR FATHER CALLED "A GIANT PONZI SCHEME."

A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and is dependent on a constant stream of new investment. Because the invested capital is not earning a sufficient return on its own, such schemes eventually collapse under their own weight. Madoff is the founder of Bernard L. Madoff Investment Securities LLC, a market-making firm he launched in 1960. His separate investment advisory business had $17.1 billion of assets under management.

The move is the latest in a long and complex series of bilateral agreements which the Swiss government has negotiated with Brussels, in order not to be isolated within Europe's powerful trade zone. But the Swiss people have regularly indicated that they do not want their country to join the EU, so getting their agreement on something as sensitive as opening national borders was not easy.

"There was a highly controversial public debate," admits Urs Bucher, head of Switzerland's office of European Integration. "Some people feared we would be opening our borders to criminals, and to thousands of illegal immigrants, but we are convinced this won't happen." In the end, the Swiss approved joining Schengen in a nationwide referendum.

One factor which swayed voters was the fact that, by joining the Schengen area, Switzerland would have access to the Schengen Information System (SIS), a Europe-wide electronic database containing thousands of details of wanted or missing people, and stolen goods and vehicles. "THIS IS A VERY VALUABLE CONTRIBUTION TO OUR SECURITY," says Luzius Mader, deputy head of the Swiss justice and police department. "It will allow us to carry out police work much more effectively."

The Hang Seng dropped 5.5 per cent to 14,758.39, while the index of mainland Chinese shares traded in Hong Kong lost 6.8 per cent to 7,911.76. The Nikkei ended the day down 5.6 per cent at 8,235.87, while the broader Topix lost 4.2 per cent to 813.37. The dollar fell to Y88.10 against the yen before settling around Y89 levels, recently trading around Y90. Naoyuki Shinohara, Japan's vice finance minister for international affairs, said currency moves had been excessive.

The equity market volatility was exacerbated by thin markets but the news damaged the frail sentiment that had been built over the week with calmer markets and hopes of a US economic stimulus plan from president-elect Barack Obama. "MARKETS WERE CALMING DOWN, so this is a terrible way to end the week and erase that sentiment, IT COULDN'T COME AT A WORSE TIME," said Joseph Kraft head of capital markets for Japan at Dresdner Kleinwort in Tokyo.

Japanese exporters were predictably in the limelight, with automakers in particular taking a pummeling. Toyota lost 10.1 per cent to Y,2760, Honda dropped 12.5 per cent to Y1,921 and Nissan fell 11.5 per cent to Y308.

Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector DOESN'T ADDRESS HOW BANKS MANAGE THEIR BALANCE SHEETS, AND INSTEAD REWARDS WEAKER LENDERS WITH NEW CAPITAL. "Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that THE GOVERNMENT IS TAKING THE ASSETS FROM THE COMPETENT PEOPLE AND GIVING THEM TO THE INCOMPETENT PEOPLE and saying, now you can compete with the competent people. It is horrible economics."

Now a specialist in commodities, Rogers said he has used the recent rally in the U.S. dollar as an opportunity to exit dollar-denominated assets. Governments are making mistakes," he said. "They're saying to all the banks, you don't have to tell us your situation. You can continue to use your balance sheet that is phoney.... ALL THESE GUYS ARE BANKRUPT, THEY'RE STILL WORRYING ABOUT THEIR BONUSES, THEY'RE STILL TRYING TO PAY THEIR DIVIDENDS, AND THE WHOLE SYSTEM IS WEAKENED."

Mr Brown is with the German chancellor in Brussels where EU leaders are trying to agree proposals to inject 200bn euros (£177bn) into European economies to help deal with the downturn.

Mr Kampeter said: "Peer Steinbruck's comments have nothing whatsoever to do with internal German politics, as Prime Minister Brown has suggested. After years of lecturing us on how we need to share in the gains of uncontrolled financial markets, the Labour politicians can't now expect us to share in its losses. The tremendous amount of debt being offered by Britain shows a complete failure of Labour policy."

He said: "I do not really want to get involved in what is clearly internal German politics here, because they have a coalition in Germany with different political parties." The prime minister's official spokesman added: "Clearly there is a debate taking place in Germany about the nature of any additional fiscal stimulus measures.

Officials said the risk of an imminent attack had increased after one of the arrested men had received the 'green light' from his paymasters to carry out a suicide mission. They added that the man was believed to be mounting an operation 'from which he was not expected to come back'. There were claims he had left a so-called matyrdom video.

The police action - which follows the recent al Qaeda-linked terror attack in Mumbai - came as the 27 European leaders, including Mr Brown, French president Nicolas Sarkozy and German chancellor Angela Merkel, met for a two-day summit. Announcing the detentions, Belgian federal prosecutor Johan Delmulle said one of the alleged plotters had already 'said goodbye to his loved ones because he wanted to enter paradise with a clear conscience'.

The operation to swoop on the alleged terror cell involved more than 240 police officers who carried out 16 raids in Brussels and a further one in Liege. The men are believed to have received terror training in jihadi camps in Afghanistan and Pakistan.

The Labor Department reported Thursday that initial applications for jobless benefits in the week ending Dec. 6 rose to a seasonally adjusted 573,000 from an upwardly revised figure of 515,000 in the previous week. That was far more than the 525,000 claims Wall Street economists expected.

Elsewhere, the U.S. trade deficit rose unexpectedly in October as a spreading global recession dampened the once-strong sales of American exports and the volume of oil imports surged by a record amount, the Commerce Department said.

Companies have eliminated a net total of 1.9 million jobs this year, and some economists project the total cuts could reach 3 million by the spring of 2010. A number of large U.S. employers announced layoffs this week, including Dow Chemical Co., 3M Co., Anheuser-Busch InBev, National Public Radio and the National Football League.

"WE'RE GOING TO HAVE RIOTS. There are already people rioting because they're losing their jobs when everybody else is being bailed out. The fairness of it becomes more and more evident as we go along. The auto companies may be hurting," he said, but "there are very few companies that aren't hurting and they're going to hurt. WE DON'T HAVE ENOUGH MONEY TO BAIL EVERYONE OUT." DeMint blamed the unions for pushing this issue as far as it has gotten.

The senator said the notion that reorganization under bankruptcy would not work was GENERATED BY THE UNIONS FOR FEAR OF LOSING THEIR POWER. "The primary driver behind this is the unions, because bankruptcy allows the auto companies to basically restructure all their contracts in a way that a bankruptcy judge says will make them sustainable," DeMint said. "And if they do that, then essentially the unions lose all their leverage. It's the unions that have brought them to the brink. So definitely, I think the reason they want a political solution and A CAR CZAR IS BECAUSE A CAR CZAR CAN PROTECT THE UNIONS THROUGH THIS WHOLE PROCESS AT THE EXPENSE OF THE TAXPAYER."

UPDATE:- A $14bn (£9.4bn) bail-out package for the beleaguered US car industry has died in the Senate after failing to get enough support in a procedural vote. The failure came after bipartisan talks on the rescue plan COLLAPSED OVER REPUBLICAN DEMANDS THAT THE UNITED AUTO WORKERS UNION AGREE TO SWIFT WAGE CUTS.

Demonstrations against the killing were seen in cities across the continent with left-wing radicals and other sympathisers taking to the streets. In SPAIN, 11 protesters were arrested and several police officers injured when clashes took place in MADRID AND BARCELONA. In COPENHAGEN, 32 people were arrested when their protest in support of the Greek protests turned violent.

In neighbouring TURKEY, about a dozen left-wing protesters daubed red paint over the front of the Greek consulate in Istanbul. Around 150 people belonging to a DANISH UNDERGROUND MOVEMENT took to the streets, throwing bottles and paint bombs at buildings, police cars and officers. In MOSCOW AND ROME, protesters threw petrol bombs at Greece's embassies.

The scale of this week's violence has left the country in deep shock as Greeks count the cost of the destruction. The Athens Chamber of Commerce said 435 businesses had been hit during the violence, with 37 completely gutted, estimating the damage at GBP 44 million (50 million euros). Under the headline "GREECE IN SELF-DESTRUCT MODE" the conservative daily newspaper Kathimerini said in an editorial: "This is a country with a state that is in a shambles, a police force in disarray, mediocre universities that serve as hotbeds of rage instead of knowledge and a shattered health care system. IT IS ALSO ON THE BRINK OF FINANCIAL RUIN."

Mubarak accused the Islamic Republic of trying to subsume its Muslim neighbors, telling the forum that "THE PERSIANS ARE TRYING TO DEVOUR THE ARAB STATES." Mubarak's comments came after the Egyptian leader recalled the country's diplomatic envoy from the Iranian capital earlier this week following an increase in tension between the two countries.

Recent strain between Cairo and Teheran has grown as several demonstrations in Iran called for the hanging of the Egyptian leader. The Iranian FARS news service reported that participants in recent student demonstrations outside the Egyptian diplomatic mission in Teheran also chanted "Death to Israel" and "Death to America" and burned an Israeli flag.

On Wednesday the Egyptian ministry was quoted as criticizing some Iranian newspapers that have repeatedly insulted Egyptian policies and leadership recently. Teheran media, for example, broadcast incitement against Cairo's policy allegedly preventing aid from reaching Palestinians in the Gaza Strip.

The source, who is close to the new administration, said the U.S. will declare that an ATTACK ON ISRAEL BY TEHRAN WOULD RESULT IN A DEVASTATING U.S. NUCLEAR RESPONSE against Iran. But America's nuclear guarantee to Israel could also be interpreted as a sign the U.S. believes Iran will eventually acquire nuclear arms.

Secretary of state-designate Hillary Clinton had raised the idea of a nuclear guarantee to Israel during her campaign for the Democratic Party's nomination for the presidency. During a debate with Obama in April, Clinton said that Israel and Arab countries must be given "deterrent backing." She added, "IRAN MUST KNOW THAT AN ATTACK ON ISRAEL WILL DRAW A MASSIVE RESPONSE."

Clinton also proposed that the American nuclear umbrella be extended to other countries in the region, like Saudi Arabia and the Gulf States, if they agree to relinquish their own nuclear ambitions. According to the same source, the nuclear guarantee would be backed by a new and improved Israeli anti-ballistic missile system. The Bush administration took the first step by deploying an early-warning radar system in the Negev, which hones the ability to detect Iranian ballistic missiles.

Greece is already battling a current account deficit of about $53bn - or 15% of GDP - easily the highest in the eurozone. And that is with a population of only 11 million people. Meanwhile, its public debt is almost equal to its national output - in part as it feels the burden of the 2004 Athens Olympics.

The Games delivered improved infrastructure but carried a hefty bill, which the government puts at about 6bn euros, but which other estimates suggest cost upwards of 10bn euros. MANY ARGUE THAT GREECE WAS NOT READY TO ENTER THE EUROZONE WHEN IT DID. And indeed, in 2004 it admitted it had JOINED THE EURO ON THE BASIS OF FIGURES THAT SHOWED ITS BUDGET DEFICIT TO BE MUCH LOWER THAN IT REALLY WAS.

And a string of revenue-raising tax measures passed by government have not gone down well. Removing a tax exemption for some of the poorest self-employed, more expensive vehicle licences and a capital gains tax on shares have done little to please. And with youth unemployment at about 19% and overall joblessness at 7.2%, THERE IS PLENTY OF ANGER ON THE STREETS.

Parents and governments are taking a "high-stakes gamble" with the long-term wellbeing of children by subjecting them to long hours of formal childcare from a very young age, according to a Unicef report. The study, which has prompted Beverley Hughes, the Children's Minister, to complain to the UN agency, recommends that ALL CHILDREN SHOULD WHERE POSSIBLE BE CARED FOR BY PARENTS AT HOME DURING THE FIRST 12 MONTHS OF LIFE. Children from the poorest homes face the double disadvantage of being born into material deprivation and receiving sub-standard childcare, Unicef says.

The research, which draws on a wealth of scientific and psychological studies, as well as government data, is bound TO REIGNITE THE FRAUGHT DEBATE ON WHETHER OVEREXPOSURE TO FORMAL CHILDCARE IS BAD FOR VERY YOUNG CHILDREN. It is also likely to provoke concerns over whether growing political, social and economic pressure on parents, particularly those on low incomes, to return to work soon after their child is born is at odds WITH EMERGING RESEARCH INTO CHILDREN'S BRAINS SHOWING THE IMPORTANCE OF STABLE ONE-TO-ONE CARE IN THE FIRST YEAR OF LIFE.

David Bull, the executive director of Unicef UK, said that despite spending on preschool education in England having quadrupled in the past ten years, "high-quality childcare is not yet available to all, and parental leave provisions remain inadequate". He added: "The report is also clear that rich nations have often been guilty of making policies based on economic considerations, not the best interests of the child."

The class of seven-year-olds at Blackshaw Lane Primary School, Royton, near Oldham, Greater Manchester burst into tears and told their parents when they got home. The parents then complained about the incident and were sent a letter by the school saying the teacher has been disciplined over the gaffe.

One father said: "My son came home and said that his substitute teacher had told the class that Santa doesn't exist and it's your mum and dad that put out presents for them. My lad was nearly in tears and so was everyone else in the class - especially as it was so close to Christmas. I THOUGHT IT WAS WRONG. He was distraught about it. He's only seven-years-old and it's part of the magic of Christmas to him. We told him that SHE DID NOT BELIEVE IN FATHER CHRISTMAS BECAUSE OF HER RELIGION and he's fine now. I FOUND IT SHOCKING. SHE HAS DONE IT MALICIOUSLY. A lot of parents were disgusted and complained to the school."