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The footage, taken on September 6 by Andrew Muncie, who is from the Highlands, shows an Israeli gunboat engaging fishing boats while international observers hold their arms in the air and scream for them to stop firing.

No-one was injured in the incident, but Palestinian fishermen claim 14 colleagues have been murdered at sea by the Israeli navy since the onset of an economic blockade imposed after Hamas took control of the Gaza Strip in June 2007. Israel says patrolling these waters is a vital security measure to stop weapons being smuggled into Gaza.
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On Saturday Alitalia’s bankruptcy administrator Augusto Fantozzi warned that some flights could be grounded due to a lack of fuel supplies, AP reported.
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In addition, initial reports showed that Hurricane Ike did not do as much damage as was originally feared to the Gulf Coast region.

Oil was trading down $3.94 to $97.24 a barrel. It traded as low as $94.13.

AIG shares dropped 52 percent to $5.82 on the New York Stock Exchange before recouping a bit to $7.41. The shares have fallen 80 percent this year and closed Friday at $12.14.

The up-front cost of insuring $10 million of AIG debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.

Over the weekend, AIG executives and New York state insurance regulators scrambled to find a way to boost AIG’s liquidity.

It was not clear early on Monday if and when a plan would be agreed on. A company spokesman did not immediately return a call seeking comment.

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.’s insolvency in 2002 and Drexel Burnham Lambert’s failure in 1990.

Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Chief Executive Officer Richard Fuld, who turned the New York-based firm into the biggest underwriter of mortgage-backed securities at the top of the U.S. real estate market, joins his counterparts at Bear Stearns Cos., Merrill Lynch & Co. and more than 10 banks that couldn’t survive this year’s credit crunch.

“There is likely to be a domino effect as other firms and individuals who relied on Lehman for financing feel the effects of its meltdown,” said Charles “Chuck” Tatelbaum, a bankruptcy lawyer with Adorno & Yoss in Florida and former editor of the American Bankruptcy Institute Journal. “The whole thing is frankly frightening for the U.S. economy.”

Shares, Bonds

Lehman’s filing was made by lawyers from New York-based Weil Gotshal & Manges, led by bankruptcy lawyer Harvey Miller. The case was assigned to U.S. Bankruptcy Judge James Peck, according to court records. Peck was sworn in as a judge in January 2006. Before taking the bench, he served as co-chair of business reorganization at Schulte Roth & Zabel, and prior to that was a partner at Duane Morris, according to the court’s web page.

Lehman shares at 9:39 a.m. dropped 92 percent in New York trading to 29 cents from their $3.65 close on Sept. 12. UBS AG, HBOS Plc and Axa SA led a decline of more than 3 percent for European stock markets on speculation a forced sale of Lehman’s assets may lead to further writedowns at other banks.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded at an all-time high in North America as investment banks sought to minimize losses from Lehman’s collapse. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

60 Cents

Lehman bondholders may get about 60 cents on the dollar if the investment bank is forced into liquidation, analysts at CreditSights Inc. said. The filing is by Lehman’s holding company and won’t include any of its subsidiaries. Lehman owes its 10 largest unsecured creditors more than $157 billion, including debts to bondholders totaling $155 billion.

The largest single creditor listed in today’s filing is Tokyo-based Aozora Bank Ltd., owed $463 million for a bank loan. Other top creditors include Mizuho Corporate Bank Ltd., owed $382 million, and a Citigroup Inc. unit based in Hong Kong owed an estimated $275 million. Lehman listed $639 billion of assets. New York-based Citigroup and The Bank of New York Mellon Corp. are among trustees for bondholders who Lehman owed about $155 billion.

London-based Barclays, which emerged as a leading candidate to acquire Lehman, pulled out first yesterday, saying it couldn’t obtain guarantees from the U.S. government or other Wall Street firms to protect against losses on Lehman’s assets.

Three Hours Later

The Federal Reserve reported Monday that industrial output dropped 1.1 percent last month, far worse than the 0.3 percent decline that economists had been expecting.

The weakness was led by an 11.9 percent drop in production of motor vehicles and parts, reflecting the hard times facing the U.S. auto industry.

Lehman, once the fourth-largest U.S. investment bank, plunged 90 percent after the 158-year-old firm’s subprime mortgage losses pushed it into the biggest bankruptcy filing in history. American International Group Inc. retreated 47 percent and was poised to erase 47 points from the Dow Jones Industrial Average as the biggest U.S. insurer sought capital, while Bank of America Corp. slumped 14 percent after agreeing to buy Merrill Lynch & Co. for $50 billion. Stocks fell across Europe and Asia, while U.S. Treasuries surged.

“It’s all basically going down the drain,” said Franz Wenzel, who helps oversee about $830 billion as deputy director for investment strategy at Axa Investment Managers in Paris. “The rhythm of the shoes that drop has accelerated. That’s what we follow with caution.”

S&P 500 futures expiring in December declined 44.70 points, or 3.6 percent, to 1,213.80 at 8:30 a.m. in New York, paring a decline of as much as 4.4 percent. Dow average futures sank 339 to 11,112, and Nasdaq-100 Index futures decreased 44.75 to 1,734.75. Europe’s Dow Jones Stoxx 600 Index lost 3.8 percent, the most since March.

The S&P 500 has decreased 20 percent since an October record as worldwide bank losses from the first nationwide decline in U.S. home values since the Great Depression reached $513.6 billion.

Rate-Cut Bets

1. The US government has refused to put money into bailing out Lehman Brothers; Barclays Capital have pulled out of the rescue attempt, which has been orchestrated by the Treasury, the Fed and the SEC but so far failed. Lehman is set to file for bankruptcy as early as, er, around about now.

2. In a moment of contagion the massive insurer AIG, itself facing untold bad debts, is looking at selloffs or breakups, racing to save itself from collapse.

3. Bank of America just bought Merrill Lynch. For fifty billon dollars. Kersplat. Just like that.

I myself have been at the centre of the action all day: not in DC, not in Wall Street, but in the blighted inner city of Detroit. Here there are foreclosed properties, torched properties – ranging from 30k in value to 600k – and the 600k ones look like art deco mansions that would go for several million in London. This is the real epicentre of the earthquake that has just hit Wall Street: the bad lending on a massive scale that forced debt down the throats of low income people like foie down the throat of a gras.

Chief Executive Robert Willumstad reached out to the Fed late on Sunday, according to reports in the Times, the Wall Street Journal and business news channel CNBC.

AIG’s scramble to secure a Fed lifeline came late into one of the worst-ever days on Wall Street, with Lehman Bros on the verge of collapse, and Bank of America moving to takeover Merrill Lynch & Co.

The Fed normally oversees monetary policy and supervision of banks, but CNBC said AIG was seeking the funds as a temporary measure and planned to repay the Fed with the proceeds from asset sales.

Rating agencies have threatened to downgrade AIG’s ratings by Monday morning, said the New York Times.

AIG officials did not immediately respond to requests for comment.

The company, until recently the world’s biggest insurer by market capitalization, has been attempting to hammer out an emergency strategic plan after its shares fell nearly 50 percent last week on fears it faced a liquidity crisis.

The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation’s prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter.

Driven by Chief Executive Kenneth Lewis, Bank of America has already made dozens of acquisitions large and small, including the purchase of ailing mortgage lender Countrywide Financial Corp. earlier this year. In adding Merrill Lynch, it would control the nation’s largest force of stock brokers as well as a well-regarded investment bank.

A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.

It would also show how the credit crisis has created opportunities for financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago, and half its all-time peak value of early 2007. Merrill shares changed hands at $17.05 each on Friday, after falling sharply in the wake of Lehman’s looming demise.

“Why would Bank of America do this?” said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. “Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically.”

Bank of America and Merrill Lynch wouldn’t comment on any discussions.

Lehman and its lawyers are getting ready to file the documents for bankruptcy protection tonight, said a person with direct knowledge of the firm’s plans. A final decision hasn’t been made, though none of the other options being considered appeared likely, the person said, declining to be identified because the discussions haven’t been made public.

Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out first, contending it couldn’t obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman’s assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks. Banks and brokers began consolidating trades in which Lehman is involved to minimize the impact of a possible bankruptcy filing tonight.

The U.S. Treasury and the Federal Reserve have struggled for three days to prevent the investment bank from failing before markets open tomorrow, people familiar with the situation said. With the two most serious bidders out of the picture, Lehman’s options are few.

“The best case is that the Fed offers a 48-hour standstill by backing Lehman’s liquidity directly to win time for other bidders to come forth or the previously interested parties to reconsider,” said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. “The worst case is bankruptcy, and Lehman goes down the tube.”

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Police Chief Harold Hurtt said a curfew, previously only in effect for areas on the southeast side under mandatory evacuation, was needed to maintain safety. The curfew is in effect through 6 a.m. each night through Saturday morning.

“Most of the lights are still out, traffic signals are still not working, debris is in the streets and it’s dark in the community,” Hurtt said.

There is no curfew in unincorporated parts of the county, and other cities were responsible for making their own access and curfew rules, if any.

Meanwhile, rain was forecast throughout the day, and a variety of flood watches and warnings were in effect for southeast Texas. Water was building on notorious low spots on roads, feeders and freeways, including some that had flooded and drained after Ike passed through Saturday.

The heavy rains weren’t stopping convoys of buses and heavy-duty vehicles from lining up outside the staging area at Tully Stadium in west Houston before dawn, preparing to head out to hard-hit areas.

The weather trigger is a cool front that is mixing with the trail of moisture the hurricane brought in. High temperatures were expected to approach 90 degrees, but the front was expected to drop temperatures into the upper 60s overnight.

Houston Mayor Bill White said this morning ice and fresh water are on the way, although he couldn’t give a timetable. He said fuel is being distributed first to those with “critical needs,” such as hospitals and emergency facilities. Power restoration is focused on the same buildings as wells water treatment plants.

“We have stressed to CenterPoint, the private company which owns the wires carrying electricity … we’ve emphasized to them that everything humanly possible should be done to get the grid back up as soon as possible.”

This morning’s rain is not expected to cause major flooding from bayous, but residents should stay inside their homes, County Judge Ed Emmett said today.

“I cannot stress this enough – transportation arteries are still very, very dangerous,” Emmett said. ”Please don’t venture out unless you absolutely have to.”

Still, the latest deluge complicated the recovery effort after Ike, whose toll and property and life was still coming into focus today. Homeland Security Secretary Michael Chertoff could not yet put a dollar amount on damage, except to say that it would likely rival some of the “legendary” damage figures of storms past.

“By any measure, it was a huge storm,” Chertoff said.

The U.S. National Security Agency is also participating in the “IP Traceback” drafting group, named Q6/17, which is meeting next week in Geneva to work on the traceback proposal. Members of Q6/17 have declined to release key documents, and meetings are closed to the public.

The potential for eroding Internet users’ right to remain anonymous, which is protected by law in the United States and recognized in international law by groups such as the Council of Europe, has alarmed some technologists and privacy advocates. Also affected may be services such as the Tor anonymizing network.

“What’s distressing is that it doesn’t appear that there’s been any real consideration of how this type of capability could be misused,” said Marc Rotenberg, director of the Electronic Privacy Information Center in Washington, D.C. “That’s really a human rights concern.”

Nearly everyone agrees that there are, at least in some circumstances, legitimate security reasons to uncover the source of Internet communications. The most common justification for tracebacks is to counter distributed denial of service, or DDoS, attacks.

But implementation details are important, and governments participating in the process — organized by the International Telecommunication Union, a U.N. agency — may have their own agendas. A document submitted by China this spring and obtained by CNET News said the “IP traceback mechanism is required to be adapted to various network environments, such as different addressing (IPv4 and IPv6), different access methods (wire and wireless) and different access technologies (ADSL, cable, Ethernet) and etc.” It adds: “To ensure traceability, essential information of the originator should be logged.”

The Chinese author of the document, Huirong Tian, did not respond to repeated interview requests. Neither did Jiayong Chen of China’s state-owned ZTE Corporation, the vice chairman of the Q6/17’s parent group who suggested in an April 2007 meeting that it address IP traceback.

A second, apparently leaked ITU document offers surveillance and monitoring justifications that seem well-suited to repressive regimes: