It sounds insane, but the liabilities being taken on by the Fed and the US Treasury are now so enormous that the ultimate financial question - until recently, unthinkable - is now being asked. COULD THE MIGHTY US GOVERNMENT DEFAULT? That's how much the world has changed.

During his trip, Mr Greenspan visited the Bank of England's monetary policy committee. He told them the US financial system had been resilient amid the bursting of the internet bubble. Share prices had halved and there had been massive bond defaults, but no big bank collapses. Mr Greenspan lauded the fact that risk had been spread, using complex derivative instruments. One of the MPC members asked: how could this be? Someone must have lost all that money; who was it? A look of quiet satisfaction came across Mr Greenspan's face as he answered: "European insurance companies."

Six years later, AIG, the largest US insurance company, has in effect been nationalised to stop it blowing up the financial world. The US has nationalised the core of its mortgage industry and the government has become the arbiter of which financial companies should survive or die.

Mr Greenspan was in charge of supervising and regulating much of the banking industry for two decades. The Fed says it is responsible for ensuring "safe and sound banking practices". It is right that other regulators should have stepped in, too – the US regulatory structure has not kept pace with market changes. But given the Fed's institutional importance and Mr Greenspan's personal stature, does anyone doubt that the Fed could have used its limited powers to ensure a closer examination of what was going on?

The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States. Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."

"If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

"That's a distinction without a difference to the American people. The key here is protecting the system... We have a global financial system, and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will. But, remember, this is about protecting the American people and protecting the taxpayers. The American people don't care who owns the financial institution. If the financial institution in this country has problems, it'll have the same impact whether it's the U.S. or foreign."

It's a rare day when finance officials, leftist intellectuals and ordinary salespeople can agree on something. But the economic meltdown that wrought its wrath from Rome to Madrid to Berlin this week brought Europeans together in a harsh chorus of condemnation of the excess and disarray on Wall Street. The finance minister of Italy's conservative and pro-U.S. government warned of nothing less than a systemic breakdown. Giulio Tremonti excoriated the "voracious selfishness" of speculators and "stupid sluggishness" of regulators. And he singled out Alan Greenspan, the former chairman of the U.S. Federal Reserve, with startling scorn.

"GREENSPAN WAS CONSIDERED A MASTER," TREMONTI DECLARED. "NOW WE MUST ASK OURSELVES WHETHER HE IS NOT, AFTER OSAMA BIN LADEN, THE MAN WHO HURT AMERICA THE MOST... It is clear that what is happening is a disease. It is not the failure of a bank, but the failure of a system. Until a few days ago, very few were willing to realize the intensity and the dramatic nature of the crisis."

On the other end of the political spectrum, among leftists who have long predicted calamity for what they call the "savage neoliberal capitalism" of Wall Street, there were gleeful allusions to the stock market crash of 1929. Expressing nostalgia for "the good old days when bankers jumped out of windows," Aeschimann condemned as "extortion" the rescue of U.S. corporate giants by the very state that free-marketeers resent.

But fear accompanied gloating. The crisis threatens to worsen woes - inflation, unemployment, weak growth - of regional powerhouses including Britain, Spain and Italy. Joaquin Almunia, an ideologically moderate Spanish Socialist who is the European Union's economic commissioner, offered a simple analysis. "It has been a problem of greed," he told El Pais newspaper. "In Europe it can't be said that we did nothing, European banks bought toxic products... Nobody knows when this will end."

The spectacle across the ocean has left a lasting impression on many Europeans. Hanna Evers of Berlin, a cellphone retailer interviewed in the shopping district of Wilmersdorfer Street, said she was angry about the amount of money that had been "burned" in recent days. "I WAS TAUGHT THAT THE U.S.A. IS THE MOTHERLAND OF MONEYMAKING," SHE ADDED. "AND NOW ALL I CAN SEE IS A HERD OF HEADLESS CHICKENS RUNNING AROUND ON WALL STREET."

In the second statement in two weeks responding to comments made by Catholic politicians on the Sunday morning program, ARCHBISHOP CHARLES CHAPUT AND AUXILIARY BISHOP JAMES CONLEY OF DENVER ARE TELLING POLITICIANS "WHO DESCRIBE THEMSELVES AS CATHOLIC," TO BEGIN TO "ACT ACCORDINGLY."

House Speaker Nancy Pelosi appeared first on the program in late August. When asked to comment on when life begins, she said that as a Catholic she had studied the issue for "a long time" and that "the doctors of the Church have not been able to make that definition." Senator Joseph Biden, Senator Barack Obama's running mate on the Democratic presidential ticket, appeared on the same program last Sunday. The senator "compounded the problem" with his explanation of when life begins, according to the bishops. The senator said that although he knows "when [life] begins for me," he claimed it to be fundamentally a "personal and private issue."

Responding to the comments of Biden, the bishops of Denver refuted the claim that the moment when life begins is "a personal and private issue. MODERN BIOLOGY KNOWS EXACTLY WHEN HUMAN LIFE BEGINS," they explained, "AT THE MOMENT OF CONCEPTION. RELIGION HAS NOTHING TO DO WITH IT," the prelates continued. "People might argue when human 'personhood' begins - though that leads public policy in very dangerous directions - but no one can any longer claim that the beginning of life is a matter of religious opinion."

The bishop's comments exhibited straight talking - no sidestepping to appease the feelings of Catholic politicians. It provided a message for all mankind to live by - NAMELY THAT LIFE BEGINS IN THE WOMB AND HAS A RIGHT TO LIFE BEFORE AND AFTER BIRTH.

EUROPEAN BANKS ARE HOLDING UP PRETTY WELL AMID THE TURMOIL SWEEPING THE INDUSTRY. None of the Old World's biggest banks appears likely to fail or put itself on the block, analysts say. INDEED, THE EUROPEANS ARE MORE LIKELY TO BE BUYING: London-based Barclays on Sept. 17 inked a $1.75 billion cash deal to buy the investment banking and trading businesses of bankrupt Lehman Brothers.

Another London-based bank, HSBC Holdings, has been mentioned as a potential buyer for crisis-racked Morgan Stanley, though HSBC won't comment. And even as Spain sinks into recession, its two biggest banks are expanding internationally, with Madrid-based Banco Santander getting the green light from European Union regulators on Sept. 16 to acquire British bank Alliance & Leicester.

BANKS ON THE CONTINENT HAVE STEERED CLEAR OF RISKY SUBPRIME-STYLE MORTGAGE LENDING, TOO. What's more, real estate markets across most of the Continent are holding up well. "We have an advantage that used to be a disadvantage: Real estate prices are quite stable," says Jörg Krämer, chief economist at Germany's Commerzbank.

Plenty of risks lie ahead. Standard & Poor's warned on Sept. 17 that banks worldwide are likely to face a new wave of writedowns stemming from the U.S. mortgage crisis, as delinquency and default rates rise and the effects of the Lehman collapse ripple through the industry. S&P says total writedowns could exceed $500 billion, up from a total of about $300 billion taken so far.

Another worry relates to the U.S. government rescue of AIG. While the $85 billion bailout prevented the collapse of the world's biggest insurer, IT'S NOT CLEAR WHETHER BILLIONS OF CREDIT DEFAULT SWAPS, WHICH BANKS PURCHASED FROM AIG TO PROTECT AGAINST POTENTIAL LOSSES, ARE STILL IN FORCE, says Sandy Chen, a London-based banking analyst at Panmure Gordon.

Before his 9am broadcast, HBOS shares had dipped to a low of 88p. But his scoop sent the price rocketing to 215p in the space of an hour, giving the mystery buyers huge instant profits. In just two deals between 8.57pm and 8.58pm, buyers snapped up more than 20million HBOS shares at 96p each, netting millions of pounds in profit.

Examination of the frenetic trading has led to suspicions of a leak, causing widespread anger at the close of one of the most turbulent weeks the City has endured. Last night Mr Peston insisted his information on the talks was 'tightly held' and described the share-dealing frenzy as 'scary'.

It was a report by Mr Peston that also led to the run on the Northern Rock bank which caused its collapse. There has also been criticism of the delay between the news breaking on the BBC News channel and official confirmation from HBOS four hours later. Keith Skeoch, chief executive of Standard Life Investments, said: 'SOMEONE WAS IN POSSESSION OF INFORMATION AND THAT INFORMATION WAS LEAKED WHICH CAUSED A MOVEMENT IN HBOS'S SHARE PRICE. The market has a mechanism for release of information. It must be adhered to if we want to stop market abuse - and we must stop market abuse.'

Add that to $200 billion pledged to Fannie Mae and Freddie Mac, that $85 billion loan to AIG, and $29 billion in Bear Stearns junk still stuck on the Federal Reserve's books, and you get a price tag of $1.014 trillion. Throw in up to $300 billion in mortgage guarantees contained in the housing bill passed over the summer, and you're up to $1.314 trillion.

IT'S A STAGGERING NUMBER - ALMOST HALF WHAT THE US GOVERNMENT SPENT IN TOTAL LAST YEAR. And it certainly makes all those who've been predicting a trillion-dollar bailout for a while, like Nouriel Roubini and Charles Morris, look pretty smart.

But does it mean we taxpayers are really out $1.3 trillion? No. First of all, they're not necessarily going to spend all that money - the $300 billion in mortgage guarantees in particular vastly exaggerates the likely outlay. And a lot of the money they spend will eventually be recouped - what they're buying has some value, after all. What this does mean is that taxpayers are taking on a huge amount of risk, mainly because nobody else is willing to take on any right now. What I still can't figure out is how the Treasury hopes to structure the bailout so there's at least a chance of getting a fair return on that risk-taking.

INTERNAL SECURITY IN NUCLEAR-ARMED PAKISTAN, a country vital to the war against al Qaeda and other Islamist militant groups, HAS DETERIORATED AT AN ALARMING RATE OVER THE PAST TWO YEARS. The bombing bore the signs of an attack by al Qaeda or an affiliate, a U.S. intelligence official said.

It came hours after new President Asif Ali Zardari, widower of assassinated former prime minister Benazir Bhutto, made his first address to parliament a few hundred metres (yards) away, calling for terrorism to be rooted out. The tightly guarded hotel, part of a U.S.-based chain and popular with foreigners, diplomats and rich Pakistanis, was engulfed in flames for hours after the blast.

Residents of the Atlantic-Caribbean danger zone should not let down their guard, despite a brief lull in the action following Tropical Storm Josephine's demise two weeks ago and Hurricane Ike's strike on the Texas coast, experts said.

"CONDITIONS ARE STILL FAVORABLE FOR HURRICANES. People really need to stay on their toes," said Gerry Bell, the lead hurricane season forecaster for the U.S. National Oceanic and Atmospheric Administration. Forecasters had predicted the season, which runs through November 30, could produce up to 18 cyclones, and the warm sea temperatures, low wind shear and other factors that contribute to the formation of hurricanes are still in place.

In the Wall Street Journal Erika Mann and Nao Matsukata look at how the US' recent reneging on WTO commitments may affect EU businesses. Citing the US' withdrawal from obligations to open its multibillion-dollar online gaming market as an example, they argue that Europe's biggest concern should be that US PROTECTIONISM of this kind "opens the door for similar brinkmanship by other countries".

China has already gained leverage from Washington's selective rejection of global trade rules, by borrowing arguments from Washington in its defence against WTO litigation over its inadequate protection of intellectual property, an issue the EU cares greatly about.

Siim Kallas, the EU Commissioner for audit, has announced that the European Court of Auditors will not sign off the EU's 2007 accounts - MARKING THE 14TH CONSECUTIVE YEAR IN WHICH THE EU HAS FAILED TO HAVE ITS ACCOUNTS CLEARED. Both the EU's Common Agricultural and the Structural Funds remain prone to errors and mismanagement, the auditors found.

The Court will publish its final report on 10 November. MEPs have warned that, at the current rate of reform, the accounts may not be signed off before 2020.

The mistakes led to an explosion deep in the tunnel at the Cern particle accelerator complex near Geneva in Switzerland. It lifted a 20-ton magnet off its mountings, filling a tunnel with helium gas and forcing an evacuation. It means that 24 magnets located all around the 17-mile circular accelerator must now be stripped down and repaired or upgraded. The failure is a huge embarrassment for Fermilab, the American national physics laboratory that built the magnets and the anchor system that secured them to the machine. It appears Fermilab made elementary mistakes in the design of the magnets and their anchors that made them insecure once the system was operational.

Last week an apparently furious and embarrassed Pier Oddone, director of Fermilab, wrote to his staff saying they had caused "a pratfall on the world stage". He said: "We are dumb-founded that we missed some very simple balance of forces. Not only was it missed in the engineering design but also in the four engineering reviews carried out between 1998 and 2002 before launching the construction of the magnets."

An investigation by Cern researchers found "fundamental" flaws that caused the explosion, close to the CMS detector, one of the LHC's most important experiments.

There were no deaths this week, but the effects of the carnage on the financial markets will be far more profound and destabilising than the 9/11 atrocity. For almost all of us, it will, I predict, be a change for the worse, and for a large minority the consequences will be extremely distressing.

THE WESTERN WORLD - BRITAIN, EUROPE AND THE U.S. - HAS MOVED FROM EXCESS TO AUSTERITY OVERNIGHT. This week's financial typhoon will savagely impact living standards. In due course, it will topple governments AND LEAD TO A PERMANENT TRANSFER OF ECONOMIC AND POLITICAL POWER from Europe and America to the emergent and, in some cases, such as China, semi-barbarous economies in the East.

I know I will be accused of being unnecessarily apocalyptic and irresponsibly negative, but I believe that the greatest mistake we can now make is to downplay the seriousness of the situation and bury our heads in the sand. Although it is hard to predict the consequences, we should expect ramifications of equal significance — INCLUDING THE RE-EMERGENCE OF VIOLENT FAR RIGHT PARTIES ACROSS THE GLOBE.

Some experts were talking this week as if the financial crisis was nearly over. They could not be more wrong. THE DOWNTURN HAS ONLY JUST BEGUN — and for most citizens uninvolved with finance the consequences have not been felt at all. But they will be felt very soon and very brutally. The British economy is in the same position as the Texan coast earlier this month as Hurricane Ike approached — apparently calm, with life going on as normal, but an almighty storm is raging just over the horizon and heading our way with terrifying speed. ALMOST OVERNIGHT WE HAVE ENTERED A NEW WORLD, and we must learn to make the best of it.

It used to be a joke that Goldman Sachs was taking over America. Its former employees seemed to be everywhere, running the US Treasury, working behind the scenes at the White House and managing a startling number of financial institutions. But it's not a joke anymore.

On the day Goldman seemed, very briefly, as if it was sliding towards the same fate as Lehman Brothers, ITS FORMER CEO, HANK PAULSON, NOW THE TREASURY SECRETARY, staged what amounts to a takeover of the US federal government by Wall Street. His "comprehensive plan" to buy up most of the toxic products gumming up the world's financial system will be the defining challenge for America's public finances for years to come.

The Speaker of the House of Representatives, Nancy Pelosi, said last night she wanted to know "how these captains of the financial world could make millions of dollars in salary, and yet their companies fail and then we have to step in to bail them out".