Vatican Recommends Islamic Finance For Western Banks

In yet another act of conciliation on the part of Western religions towards Islam, the Vatican newspaper Osservatore Romano has voiced its approval of Islamic finance. The Vatican paper wrote that banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis. “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the Osservatore Romano said. “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral”. Sukuk may be used to fund the “‘car industry or the next Olympic Games in London,” the article says.

The Vatican article is only one of many articles that have recently appeared on the acceptance by Western governments and bankers of an Islamic financing system. More than accepting it, they seem to be welcoming it, though they are certainly being pressured into this by unnamed forces bowing to the dictates of Islam.

Last December, the French Senate looked at ways to eliminate legal hurdles, particularly levies, for Islamic financial services and products in France and the potential for listing companies on the Paris Stock Exchange. Senate sources said that this area of the financial market is worth from 500 to 600 billion dollars and could grow by an average 11 percent a year.

French Finance Minister Christine Lagarde has announced France’s intention to make Paris “the capital of Islamic finance” and announced several Islamic banks would open branches in the French capital in 2009.

This hearkens back to a video from November 26, 2008 that was posted at many French websites showing Madame Lagarde announcing with (according to some bloggers) visible embarrassment the decision to allow Islamic financing in France. Whether or not this move is constitutional is apparently not even an issue, since European countries change their laws to accommodate Islam. If the “sacred” law separating Church and State can be violated, any law can. The video, with its very soft audio, shows the minister in a strange garb, and struggling to present a happy countenance. There is no way of knowing if this is merely the quality of the video, or an indication of her emotional state. An article from Le Parisien dated November 27, 2008 provides the following information, in addition to the facts presented above:

A revolution in the banking world. After London, where the first Islamic bank opened its doors in September 2004, France could authorize banks respecting sharia law to open in 2009 (...) Hervé de Charette, president of the Franco-Arab Chamber of Commerce emphasizes that “importing Islamic banking into France would help the integration process”. The main obstacle: “Islamic banking arouses fear because it is associated, wrongly, with religious fundamentalism, even with the financing of terrorism,” deplores Elyès Jouini, professor of economics at the University of Paris. (...)

The world economic crisis has changed the ball game. From New York to Hong Kong, all the financial centers on the planet are grabbing the billions of dollars amassed by the oil-rich monarchies of the Gulf. To tap into this manna (...) is the stated goal of Christine Lagarde. “We are determined to make of Paris a great center for Islamic finance,” declared the Finance Minister as she inaugurated the second French forum on Islamic banking.

For another longer English-language article, visit Islam On Line. This article goes back to July 2008, showing that even before the crisis, France had initiated a policy favoring Islamic banking.

Source: Brussels Journal

Related Links:

Will American Capitalism Survive?

Islamic Finance Products

Vatican Says Islamic Finance May Help Western Banks in Crisis

Easing Limits on Islamic Finance in France

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Blame for Global Financial Crisis

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Will American Capitalism Survive?

As the modern system of capitalism faces the most serious challenge of its existence since Adam Smith, the name of John Maynard Keynes (1883-1946) is being regularly invoked by economists, politicians, bankers, and the media. And with good reason. Born in Cambridge, England, in 1883, the year Karl Marx died, Keynes probably saved capitalism from itself and kept Communists at bay. Keynesian Economics advocates the use of government monetary and fiscal policy to maintain full employment with low inflation.

Keynes described Capitalism in the following words: "Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone."

A well-known anti-Semite, Keynes once said, "It is not agreeable to see civilization so under the ugly thumbs of its impure Jews who have all the money and the power and brains." As in the past financial crises, powerful Jews on Wall Street and in Washington are being held responsible by many as the culprits of the current economic collapse.

In response to a severe recession or possible depression, Keynes suggested: "The government should pay people to dig holes in the ground and then fill them up." He advocated massive spending by government to stimulate demand when all else fails.

Who was Keynes? Here is how UC Berkeley's Robert Reich described him a few years ago: "A Cambridge University don with a flair for making money, a graduate of England's exclusive Eton prep school, a collector of modern art, the darling of Virginia Woolf and her intellectually avant-garde Bloomsbury Group, the chairman of a life-insurance company, later a director of the Bank of England, married to a ballerina, John Maynard Keynes--tall, charming and self-confident--nonetheless transformed the dismal science into a revolutionary engine of social progress."

Keynes was clearly a very smart man. His ideas of modern Capitalism have created unprecedented wealth and lifted hundreds of millions of people out of poverty. And his ideas may still help save capitalism yet again. At least, that is the hope of the Obama administration and the backers of the massive stimulus package of about $800 billion recently passed by the US Congress. However, what Keynes couldn't have imagined are the new heights of avarice and wickedness of the modern political-industrial elite in America that has threatened the very foundations of the system that brought them wealth and power. During the last decade, the behavior of American capitalists and politicians has been unbelievably self-destructive.

Even Alan Greenspan, the icon of modern US capitalism, was forced to show contrition in October, 2008. The former Federal Reserve Chairman told a House committee that the banking and housing crisis is a "once-in-a-century credit tsunami." When asked if his ideology pushed him to make bad decisions, Greenspan said he found a "flaw" in his governing ideology that has led him to re-examine his thinking. There has, however, been no acceptance of any responsibility for the current crisis by the members of US Congress and powerful finance, banking and appropriations committees responsible for overseeing the US finance and economy.

The American economy continues to deteriorate rapidly with the devastating credit crunch and major loss of confidence by consumers, businesses and investors. At this point, tax cuts or just handing out cash to banks or big infrastructure projects or re-regulation are not likely to help hasten economic recovery. The Obama administration will need to take more drastic measures, including nationalization and recapitalization of major banks to ensure that the much needed credit to businesses and consumers starts flowing again. Ideological aversion to nationalization will only delay recovery and take a much heavier toll on ordinary Americans in terms of job losses, home foreclosures and loss of other basic necessities of life.

The problem that some of the the critics of the Obama economic team and their Congressional overseers, derived mainly from the Clinton administration and the hold-overs from Bush-era, point out is articulated well by Nassim Taleb, the author of Black Swan. “We have the same people in charge, those who did not see the crisis coming,” he said recently on CNBC.

The roots of the current crisis can be traced to the Reagan revolution. Beginning in the early 1980s, Reaganomics transformed the United States in fundamental ways. Since the world saw the fall of the Soviet Union and collapse of Communism, the Conservative Republican ideas of less government and more deregulation have continued to change the economic landscape in America and the rest of the world. This revolution has now lasted almost three decades under various US administrations including Bush 41, Clinton and Bush 43. The Reagan ideas have also been adopted and preached by international financial institutions like the World Bank and the International Monetary Fund.

The continued wave of deregulation engineered and supported by America's predominantly Jewish political-industrial elite has led to the creation and trading of what Warren Buffet describes as "financial weapons of mass destruction". Such newfangled, unregulated financial derivative products as some mortgage-backed securities, credit default swaps and other wildly speculative futures and commodities contracts have produced hundreds of billions of dollars worth of personal gains for the financial industry executives and hundreds of millions of dollars in political contributions for American politicians who are now grand-standing as saviors of the American and the world economy.

The fate of many new-comers from the emerging economies of the world is closely tied to the success or failure of capitalism in America. It appears that some of the countries such as Brazil, Russia, China and India, who embraced the conservative American ideas of "economic reform" and "deregulation", may already be too late for the party. However, the European and Asian nations with substantial population of savers and entrepreneurs will recover rapidly and thrive again, as long as they keep their banks and financial institutions on a tight leash. In particular, the world's top creditor nations such as China , Japan and Germany with high savings rates, massive trade surpluses and large central bank cash reserves are likely to come out ahead at the end of the current crisis. Others may not be so lucky. But all the follower nations that have essentially been copying the US model will have to develop their own original ideas with financial systems and economic models to move forward in uncharted waters. Clearly, any new models will require a deep understanding and introspection of what has worked and where has the American capitalism gone wrong.

Related Links:

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Are Jews Culprits of Collapse on Wall Street?

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US Mortgage Fraud Funded Bollywood!

An Indian-American investor and producer of Bollywood movies has been convicted of mortgage fraud in the United States. How did he scam US banks and investors? How did US mortgage money end up funding Bollywood? To answer these questions, let's look at the broader story of US mortgage fraud and its impact on the international financial markets and the world economy.


The French stock market triggered worldwide shares selloff in August 2007 after BNP Paribas, the largest publicly traded bank in France, suspended investors’ ability to remove money from three funds that had invested in American mortgage securities. The bank said it had become temporarily unable to place a value on the funds, which have turned sour as increasing numbers of homeowners have defaulted on their loans.

The news came as a shock to many who mistakenly believed the damage from the US mortgage crisis was limited to the US financial markets. How did this happen? The answer lies in how the mortgage business has changed over the last decade. Until the 1980s, the mortgage lenders kept the loans on their own books and assumed full risk of default. The loan officers either knew the borrowers or checked them out carefully before approving the loans. All of this changed with the advent of securitization of debt that allowed the original lenders to offload their loans and pass the risk on to investors, including large foreign institutions such as BNP Paribas, who bought US mortgage-backed securities as investments. The rating agencies jumped into the opportunity to make money by giving AA and AAA investor grade ratings to some of the riskiest of securities backed at least partially by shaky or sub-prime mortgages issued to less credit-worthy, even fraudulent, customers. Others such as AIG created the appearance of lower risk to investors by issuing credit default swaps to ensure such securities.

Many of the subprime loans were issued to unsuspecting borrowers lured by dishonest mortgage brokers. These loans were based on false information such as exaggerated claims of income, inflated property appraisals, and given at very low teaser rates. Some of the borrowers knowingly took advantage of easy credit by falsifying information on their applications. Mortgages brokers and banks made enormous profits by issuing such mortgages which were then sold as securitized debt to investors. Needless to say, many of the borrowers started to default as soon as their rates and payments increased after the initial period of teaser rates.

Last month, I actually met a technician in Silicon Valley who came to do some work at my newly-purchased home. He asked me if I had bought my home through short sale or foreclosure. I said no. Then he proceeded to tell me that he had had two of his homes foreclosed recently. When I said I am sorry to hear that, he said it's no big deal. It turns out that he had borrowed 125% of the value on each of those homes at low teaser rates and pocketed the extra cash after paying for the homes. He rented the homes and then used the cash to buy two brand new cars and took a vacation. When the rates increased, he did not keep up with the payments and lost both homes. But he kept the cars, enjoyed his vacation and kept the leftover cash.

What this technician's story represents is only the tip of the huge mortgage default mess and massive investor losses. Yesterday's Washington Post reports that Vijay K. Taneja, a well-known Bollywood investor, has admitted to mortgage fraud in Virginia. Taneja pleaded guilty in U.S. District Court in Alexandria to a fraud enterprise that cost banks at least $33 million, the largest mortgage fraud case in Virginia in almost 20 years and among the largest nationally. Prosecutors said he created bogus mortgage loans, sold legitimate loans to more than one buyer and pocketed the proceeds of refinancings.

Taneja's recent movie, "Aap Ka Suroor" featuring Himesh Reshammiya, was released in June of this year. His concert "Incredibles" , featuring big Bollywood stars, toured the US earlier this year.

According to Washington Post, prosecutors told the judge that Taneja invested millions of his mortgage proceeds in Indian films and theatrical productions through one of his companies, Elite Entertainment, and that they are still trying to untangle the financial web. "He has millions of dollars unaccounted for," Assistant U.S. Attorney Stephen Learned said as he asked Hilton to order Taneja to be electronically monitored to ensure that he doesn't flee before sentencing. "There's so much money, and it's difficult to figure out where it all went."

The above two examples are just the beginning of the anecdotal evidence of fraudulent mortgages that are at least partly responsible for the international financial crisis we find ourselves in. The Federal Bureau of Investigation is investigating 19 major corporate fraud cases related to the mortgage crisis. The targets of most of those investigations have not been disclosed. In addition, the F.B.I. has 1,380 small mortgage fraud investigations now open in field offices around the country, a sharp increase over previous years, according to FBI officials. Other culprits include inadequacy of the risk models, lack of regulation of financially engineered products, and the actions of the US rating agencies. The US origins and the global nature of the problem requires concerted international investigation of the current crisis to develop a new regulatory regime and enforcement mechanisms that cover financially-engineered products such as securitized debt and credit default swaps and better oversight of the rating agencies.

Democrats Must Share Blame for Worst Financial Crisis

The Bush administration has been the target of attacks by Democrats for the international financial crisis that began on Wall street earlier this year. The critics' main argument is that the Bush-era anti-regulation environment allowed unregulated derivatives contracts, called "weapons of mass destruction" by Warren Buffett, to grow into a mushroom cloud.

While it is true that the dramatic growth of derivative contracts such as credit default swaps happened on Republicans' watch, the fact is that the seeds of the current crisis were sown during Clinton years. It all began with an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

It not only removed derivatives and credit default swaps from the purview of federal oversight (on page 262 of the legislation), Congress prohibited the state and local governments from enforcing existing gambling and bucket shop laws against Wall Street.

As the recent CBS 60 Minutes segment explained, "In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously." Though CNN has only picked Senator Phil Gramm as one its top 10 Culprits of Collapse, the entire senate is responsible for it.

Clearly, the unanimous Senate passage of the Commodity Futures Modernization Act of 2000 demonstrated the power of Wall Street over both Republicans and Democrats. In fact, the data of the financial services industry's recent campaign contributions shows that two of the top three recipients of the largess from Wall street are Democrats Barack Obama and Hilary Clinton. John McCain is in a distant third position. Overall, Sen Obama's campaign is awash with record, massive cash contributions.

Since the current financial crisis has its roots in easy, plentiful mortgages and the housing bubble facilitated by the Democrats' unabashed and reckless support for home ownership via Fannie and Freddie and community re-investment legislation, a larger share of the blame for the current crisis should be assigned to the Congressional Democrats such as Barny Frank and Chris Dodd.

Are Jews Culprits of Collapse on Wall Street?

The high-profile role played by Jews on Wall Street has never been a secret. Many of the wheelers and dealers responsible for shaping the current US financial system are Jewish, including former AIG CEO Hank Greenberg, former Citigroup CEO Sandy Weill, recently-retired Lehman Bros. CEO Richard Fuld, former Fed chairman Alan Greenspan, former Treasury Secretary Bob Rubin, current Fed chairman Ben Bernanke,etc. One of the "weapons of mass destruction" described by the legendary investor Warren Buffet is the Credit Default Swap. Greenberg's AIG is the biggest purveyor of CDS. In spite of the warnings by Buffet in 2006, Greenspan and his successor Bernanke argued against regulating derivatives such as credit default swaps. Unregulated financial derivatives are now considered the biggest cause of the financial collapse.

Credit derivatives is one of the most successful innovations of financial engineering over the last ten years. The current active credit derivatives market has produced an array of new products. For example, credit-default swaps are an indicator of the cost of bond "insurance" that varies with the risk of bond default. Credit default swaps are privately traded derivative contracts usually bought by bond holders from CDS issuers like AIG, Ambac, FGIC, and MBIA and other entities. Like other derivatives, CDS are not regulated by government agencies. The CDS issuers are expected (not gauranteed or back-stopped by governments) to reimburse bondholders in case the bond issuing companies or governments default. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The buyers of CDS do not have to be bondholders. Any one can buy a CDS to bet on the probability of default by debt issuers. Once issued, the credit default swaps are bought and sold like any other contract. Many of these derivative contracts were bought to bet that the housing bubble would pop and many homeowners would default on their mortgages. That is exactly what happened this year. These derivative contracts have produced enormous profits for Wall Street firms in the last decade. But now the Fortune magazine calls these derivatives "a $55 tillion problem".

The world of finance is not unique in the dominant role played by Jews. Other businesses including media and entertainment and professions such as medicine, law and accounting have powerful Jewish presence. American Jews are disproportionately over-represented in the US Congress, the Senate and the Supreme Court as well. US policies in all spheres are heavily influenced by the Jewish minority in the United States. The exclusive club of Nobel laureates is dominated by its Jewish members, a testament to Jewish culture of hard work, commitment and achievement. Many significant levers of power are controlled by American Jews, a constant that does not change with election winners or losers in Washington, where AIPAC is the most powerful lobby. Both Obama and McCain teams boast of powerful Jews as key policy advisers on foreign affairs, finance and national security. Robert Rubin and Dennis Ross are advising Obama. Joe Lieberman is advising McCain.

When former President Pervez Musharraf of Pakistan addressed a dinner meeting of the American Jewish Congress in September 2005, his Jewish audience were described as the American business, political and social elite.

When things go wrong in any of the major US businesses or institutions, people looking for scapegoats often blame influential Jews because of the large Jewish presence in each of them. The current financial crisis is no exception.

Abraham Foxman, President of Anti-Defamation League, has written in Jerusalem Post about the recent "anti-semitic" response to the financial crisis. He writes, "It never fails. Whenever there is a financial crisis or trading scandal in the stock markets, the anti-Semites come out of the woodwork. The classic stereotype of the Jewish Shylock out to have his Christian pound of flesh dies very hard, if at all. The Jew as economic opportunist sucking the financial life-blood out of a nation or of the whole world is continually reborn".

Mr. Foxman does have a point. Stereotypes, whether Jewish or Muslim, are hard to change. The reality is that there are only three Jews on the CNN's latest top ten list of the culprits of collapse even if one argues that these three are the most important of the top ten. They are: Former Fed Chairman Alan Greenspan, Current Fed Chairman Ben Bernanke and the Lehman Brothers CEO Richard Fuld. As some of us blame the few who made serious mistakes and happen to be Jewish, let us not forget that a large number of Jewish workers and investors on Wall Street are victims of the financial meltdown. Many Jews have lost their jobs while others are suffering major declines in their investment portfolios.

Related Links:

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Financial Crisis Brings Out Anti-Semites

Jews on Wall Street

The Israel Lobby and US Foreign Policy

The Rise of Jewish Power-Nothing Short of Astounding

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Credit Default Swaps

$55 Trillion Problem

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McCain, Obama Clash on Pakistan, US Economy, Energy Policy

In a town hall setting, US presidential hopefuls took questions from an audience of over 100 uncommitted likely voters selected by Gallup organization. In particular, the two candidates clashed over Pakistan, US economy and energy.

Pakistan:

On Pakistan, the two candidates repeated their well-known positions articulated in the first debate and their policy speeches. As usual, Senator McCain advocated working with Pakistanis to win their support while Senator Obama insisted that the US must go after Al Qaeda and Taliban inside Pakistan. Senator McCain chided Sen Obama for talking loudly about going into Pakistan which will likely lessen support in Pakistan to go after the terrorists. He reminded Obama and the audience of President Theodore Rossevelt's motto to "talk softly but carry a big stick". Here's an excerpt of the transcript:

Katie Hamm( Audience Member): Should the United States respect Pakistani sovereignty and not pursue al Qaeda terrorists who maintain bases there, or should we ignore their borders and pursue our enemies like we did in Cambodia during the Vietnam War?

Obama: Katie, it's a terrific question and we have a difficult situation in Pakistan. I believe that part of the reason we have a difficult situation is because we made a bad judgment going into Iraq in the first place when we hadn't finished the job of hunting down bin Laden and crushing al Qaeda.

So what happened was we got distracted, we diverted resources, and ultimately bin Laden escaped, set up base camps in the mountains of Pakistan in the northwest provinces there.

They are now raiding our troops in Afghanistan, destabilizing the situation. They're stronger now than at any time since 2001. And that's why I think it's so important for us to reverse course, because that's the central front on terrorism.

They are plotting to kill Americans right now. As Secretary Gates, the defense secretary, said, the war against terrorism began in that region and that's where it will end. So part of the reason I think it's so important for us to end the war in Iraq is to be able to get more troops into Afghanistan, put more pressure on the Afghan government to do what it needs to do, eliminate some of the drug trafficking that's funding terrorism.

But I do believe that we have to change our policies with Pakistan. We can't coddle, as we did, a dictator, give him billions of dollars and then he's making peace treaties with the Taliban and militants.

What I've said is we're going to encourage democracy in Pakistan, expand our nonmilitary aid to Pakistan so that they have more of a stake in working with us, but insisting that they go after these militants.

And if we have Osama bin Laden in our sights and the Pakistani government is unable or unwilling to take them out, then I think that we have to act and we will take them out. We will kill bin Laden; we will crush Al Qaeda. That has to be our biggest national security priority.

Brokaw: Sen. McCain?

McCain: Well, Katie , thank you.

You know, my hero is a guy named Teddy Roosevelt. Teddy Roosevelt used to say walk softly -- talk softly, but carry a big stick. Sen. Obama likes to talk loudly.

In fact, he said he wants to announce that he's going to attack Pakistan. Remarkable.

You know, if you are a country and you're trying to gain the support of another country, then you want to do everything you can that they would act in a cooperative fashion.

When you announce that you're going to launch an attack into another country, it's pretty obvious that you have the effect that it had in Pakistan: It turns public opinion against us.

Now, let me just go back with you very briefly. We drove the Russians out with -- the Afghan freedom fighters drove the Russians out of Afghanistan, and then we made a most serious mistake. We washed our hands of Afghanistan. The Taliban came back in, Al Qaeda, we then had the situation that required us to conduct the Afghan war.

Now, our relations with Pakistan are critical, because the border areas are being used as safe havens by the Taliban and Al Qaeda and other extremist organizations, and we have to get their support.

Now, General Petraeus had a strategy, the same strategy -- very, very different, because of the conditions and the situation -- but the same fundamental strategy that succeeded in Iraq. And that is to get the support of the people.

We need to help the Pakistani government go into Waziristan, where I visited, a very rough country, and -- and get the support of the people, and get them to work with us and turn against the cruel Taliban and others.

And by working and coordinating our efforts together, not threatening to attack them, but working with them, and where necessary use force, but talk softly, but carry a big stick.

Obama: Tom, just a...

Brokaw: Sen. McCain...

Obama: ... just a quick follow-up on this. I think...

McCain: If we're going to have follow-ups, then I will want follow-ups, as well.

Brokaw: No, I know. So but I think we get at it...

McCain: It'd be fine with me. It'd be fine with me.

Brokaw: ... if I can, with this question.

Obama: Then let's have one.

Brokaw: All right, let's have a follow-up.

McCain: It'd be fine with me.

Obama: Just -- just -- just a quick follow-up, because I think -- I think this is important.

Brokaw: I'm just the hired help here, so, I mean...

Obama: You're doing a great job, Tom.

Look, I -- I want to be very clear about what I said. Nobody called for the invasion of Pakistan. Sen. McCain continues to repeat this.

What I said was the same thing that the audience here today heard me say, which is, if Pakistan is unable or unwilling to hunt down bin Laden and take him out, then we should.

Now, that I think has to be our policy, because they are threatening to kill more Americans.

Now, Sen. McCain suggests that somehow, you know, I'm green behind the ears and, you know, I'm just spouting off, and he's somber and responsible.

McCain: Thank you very much.

Obama: Sen. McCain, this is the guy who sang, "Bomb, bomb, bomb Iran," who called for the annihilation of North Korea. That I don't think is an example of "speaking softly."

This is the person who, after we had -- we hadn't even finished Afghanistan, where he said, "Next up, Baghdad."

So I agree that we have to speak responsibly and we have to act responsibly. And the reason Pakistan -- the popular opinion of America had diminished in Pakistan was because we were supporting a dictator, Musharraf, had given him $10 billion over seven years, and he had suspended civil liberties. We were not promoting democracy.

This is the kind of policies that ultimately end up undermining our ability to fight the war on terrorism, and it will change when I'm president.

McCain: And, Tom, if -- if we're going to go back and forth, I then -- I'd like to have equal time to go -- to respond to...

Brokaw: Yes, you get the...

McCain: ... to -- to -- to...

Brokaw: ... last word here, and then we have to move on.

McCain: Not true. Not true. I have, obviously, supported those efforts that the United States had to go in militarily and I have opposed that I didn't think so.

I understand what it's like to send young American's in harm's way. I say -- I was joking with a veteran -- I hate to even go into this. I was joking with an old veteran friend, who joked with me, about Iran.

But the point is that I know how to handle these crises. And Sen. Obama, by saying that he would attack Pakistan, look at the context of his words. I'll get Osama bin Laden, my friends. I'll get him. I know how to get him.

I'll get him no matter what and I know how to do it. But I'm not going to telegraph my punches, which is what Sen. Obama did. And I'm going to act responsibly, as I have acted responsibly throughout my military career and throughout my career in the United States Senate.

And we have fundamental disagreements about the use of military power and how you do it, and you just saw it in response to previous questions.

Brokaw: Can I get a quick response from the two of you about developments in Afghanistan this week? The senior British military commander, who is now leading there for a second tour, and their senior diplomatic presence there, Sherard Cowper-Coles, who is well known as an expert in the area, both have said that we're failing in Afghanistan.

The commander said we cannot win there. We've got to get it down to a low level insurgency, let the Afghans take it over. Cowper-Coles said what we need is an acceptable dictator.

If either of you becomes president, as one of you will, how do you reorganize Afghanistan's strategy or do you? Briefly, if you can.

Obama: I'll be very brief. We are going to have to make the Iraqi government start taking more responsibility, withdraw our troops in a responsible way over time, because we're going to have to put some additional troops in Afghanistan.

Gen. [David] McKiernan, the commander in Afghanistan right now, is desperate for more help, because our bases and outposts are now targets for more aggressive Afghan -- Taliban offenses.

We're also going to have to work with the Karzai government, and when I met with President Karzai, I was very clear that, "You are going to have to do better by your people in order for us to gain the popular support that's necessary."

I don't think he has to be a dictator. And we want a democracy in Afghanistan. But we have to have a government that is responsive to the Afghan people, and, frankly, it's just not responsive right now.

Brokaw: Sen. McCain, briefly.

McCain: Gen. Petraeus has just taken over a position of responsibility, where he has the command and will really set the tone for the strategy and tactics that are used.

And I've had conversations with him. It is the same overall strategy. Of course, we have to do some things tactically, some of which Sen. Obama is correct on.

We have to double the size of the Afghan army. We have to have a streamlined NATO command structure. We have to do a lot of things. We have to work much more closely with the Pakistanis.

But most importantly, we have to have the same strategy, which Sen. Obama said wouldn't work, couldn't work, still fails to admit that he was wrong about Iraq.

He still will not admit that he was wrong about the strategy of the surge in Iraq, and that's the same kind of strategy of go out and secure and hold and allow people to live normal lives.

And once they feel secure, then they lead normal, social, economic, political lives, the same thing that's happening in Iraq today.

So I have confidence that General Petraeus, working with the Pakistanis, working with the Afghans, doing the same job that he did in Iraq, will again. We will succeed and we will bring our troops home with honor and victory and not in defeat.

Financial Crisis

On the current financial crisis, Senator Obama blamed the wave of deregulation during the Bush years under Republicans for the current crisis. He accused Sen McCain of supporting the deregulation that precipitated the current crisis. In response, Sen McCain accused the lack of oversight by the Democratic Congress and Democrats' long-standing support of Fannie Mae and Freddie Mac in helping promote easy home loans to those who could not afford them. Here's the transcript on this part of the debate:

Clark: Well, Senators, through this economic crisis, most of the people that I know have had a difficult time. And through this bailout package, I was wondering what it is that's going to actually help those people out.

McCain: Well, thank you, Oliver, and that's an excellent question, because as you just described it, bailout, when I believe that it's rescue, because -- because of the greed and excess in Washington and Wall Street, Main Street was paying a very heavy price, and we know that.

I left my campaign and suspended it to go back to Washington to make sure that there were additional protections for the taxpayer in the form of good oversight, in the form of taxpayers being the first to be paid back when our economy recovers -- and it will recover -- and a number of other measures.

But you know, one of the real catalysts, really the match that lit this fire was Fannie Mae and Freddie Mac. I'll bet you, you may never even have heard of them before this crisis.

But you know, they're the ones that, with the encouragement of Sen. Obama and his cronies and his friends in Washington, that went out and made all these risky loans, gave them to people that could never afford to pay back.

And you know, there were some of us that stood up two years ago and said we've got to enact legislation to fix this. We've got to stop this greed and excess.

Meanwhile, the Democrats in the Senate and some -- and some members of Congress defended what Fannie and Freddie were doing. They resisted any change.

Meanwhile, they were getting all kinds of money in campaign contributions. Sen. Obama was the second highest recipient of Fannie Mae and Freddie Mac money in history -- in history.

So this rescue package means that we will stabilize markets, we will shore up these institutions. But it's not enough. That's why we're going to have to go out into the housing market and we're going to have to buy up these bad loans and we're going to have to stabilize home values, and that way, Americans, like Alan, can realize the American dream and stay in their home.

But Fannie and Freddie were the catalysts, the match that started this forest fire. There were some of us -- there were some of us that stood up against it. There were others who took a hike.

Brokaw: Sen. Obama?

Obama: Well, Oliver, first, let me tell you what's in the rescue package for you. Right now, the credit markets are frozen up and what that means, as a practical matter, is that small businesses and some large businesses just can't get loans.

If they can't get a loan, that means that they can't make payroll. If they can't make payroll, then they may end up having to shut their doors and lay people off.

And if you imagine just one company trying to deal with that, now imagine a million companies all across the country.

So it could end up having an adverse effect on everybody, and that's why we had to take action. But we shouldn't have been there in the first place.

Now, I've got to correct a little bit of Sen. McCain's history, not surprisingly. Let's, first of all, understand that the biggest problem in this whole process was the deregulation of the financial system.

Sen. McCain, as recently as March, bragged about the fact that he is a deregulator. On the other hand, two years ago, I said that we've got a sub-prime lending crisis that has to be dealt with.

I wrote to Secretary Paulson, I wrote to Federal Reserve Chairman [Ben] Bernanke, and told them this is something we have to deal with, and nobody did anything about it.

A year ago, I went to Wall Street and said we've got to reregulate, and nothing happened.

And Sen. McCain during that period said that we should keep on deregulating because that's how the free enterprise system works.

Now, with respect to Fannie Mae, what Sen. McCain didn't mention is the fact that this bill that he talked about wasn't his own bill. He jumped on it a year after it had been introduced and it never got passed.

And I never promoted Fannie Mae. In fact, Sen. McCain's campaign chairman's firm was a lobbyist on behalf of Fannie Mae, not me.

So -- but, look, you're not interested in hearing politicians pointing fingers. What you're interested in is trying to figure out, how is this going to impact you?

This is not the end of the process; this is the beginning of the process. And that's why it's going to be so important for us to work with homeowners to make sure that they can stay in their homes.

The secretary already has the power to do that in the rescue package, but it hasn't been exercised yet. And the next president has to make sure that the next Treasury secretary is thinking about how to strengthen you as a home buyer, you as a homeowner, and not simply think about bailing out banks on Wall Street.

Brokaw: Sen. Obama, time for a discussion. I'm going to begin with you. Are you saying to Mr. Clark (ph) and to the other members of the American television audience that the American economy is going to get much worse before it gets better and they ought to be prepared for that?

Obama: No, I am confident about the American economy. But we are going to have to have some leadership from Washington that not only sets out much better regulations for the financial system.

The problem is we still have a archaic, 20th-century regulatory system for 21st-century financial markets. We're going to have to coordinate with other countries to make sure that whatever actions we take work.

But most importantly, we're going to have to help ordinary families be able to stay in their homes, make sure that they can pay their bills, deal with critical issues like health care and energy, and we're going to have to change the culture in Washington so that lobbyists and special interests aren't driving the process and your voices aren't being drowned out.

Brokaw: Sen. McCain, in all candor, do you think the economy is going to get worse before it gets better?

McCain: I think it depends on what we do. I think if we act effectively, if we stabilize the housing market -- which I believe we can, if we go out and buy up these bad loans, so that people can have a new mortgage at the new value of their home -- I think if we get rid of the cronyism and special interest influence in Washington so we can act more effectively.

My friend, I'd like you to see the letter that a group of senators and I wrote warning exactly of this crisis. Sen. Obama's name was not on that letter.

The point is -- the point is that we can fix our economy. Americans' workers are the best in the world. They're the fundamental aspect of America's economy.

They're the most innovative. They're the best -- they're most -- have best -- we're the best exporters. We're the best importers. They're most effective. They are the best workers in the world.

And we've got to give them a chance. They've got -- we've got to give them a chance to do their best again. And they are the innocent bystanders here in what is the biggest financial crisis and challenge of our time. We can do it.

Energy:

On energy, Sen McCain emphasized the need to drill for energy in the US now to reduce dependence on foreign nations and help stabilize or cut prices. Obama responded by saying that the focus must be on promoting alternative, sustainable sources like wind and solar. McCain accused Obama of voting for a bad energy bill laced with pork and huge tax breaks for the oil companies. Here's the part of the transcript related to energy:

Brokaw: Should we fund a Manhattan-like project that develops a nuclear bomb to deal with global energy and alternative energy or should we fund 100,000 garages across America, the kind of industry and innovation that developed Silicon Valley?

McCain: I think pure research and development investment on the part of the United States government is certainly appropriate. I think once it gets into productive stages, that we ought to, obviously, turn it over to the private sector.

By the way, my friends, I know you grow a little weary with this back-and-forth. It was an energy bill on the floor of the Senate loaded down with goodies, billions for the oil companies, and it was sponsored by Bush and Cheney.

You know who voted for it? You might never know. That one. You know who voted against it? Me. I have fought time after time against these pork barrel -- these bills that come to the floor and they have all kinds of goodies and all kinds of things in them for everybody and they buy off the votes.

I vote against them, my friends. I vote against them. But the point is, also, on oil drilling, oil drilling offshore now is vital so that we can bridge the gap. We can bridge the gap between imported oil, which is a national security issue, as well as any other, and it will reduce the price of a barrel of oil, because when people know there's a greater supply, then the cost of that will go down.

That's fundamental economics. We've got to drill offshore, my friends, and we've got to do it now, and we can do it.

And as far as nuclear power is concerned, again, look at the record. Sen. Obama has approved storage and reprocessing of spent nuclear fuel.

And I'll stop, Tom, and you didn't even wave. Thanks.

Who Won?

Overall, I think Barack Obama fared well in a format that is known to favor John McCain. I would still give McCain a slight edge on his knowledge of the substance discussed and the points argued. Senator McCain made a bold proposal to allocate $300b to buy out bad mortgages, although he did not get into the specifics of it. Even as Obama criticized Musharraf and Pakistan for trying to negotiate peace with militants, I was disappointed that there was not much discussion on the broad consensus now reportedly emerging among US, UK, NATO and UN that the Afghan war can not be won by military means alone; that political negotiations are necessary.