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Henry Paulson and Ben S. Bernanke may have to weather more speculative attacks on financial institutions as they resist using public funds to aid the sale of Lehman Brothers Holdings Inc.

“The raptors test the fence for weak spots,'' said Vincent Reinhart, a former director of the Federal Reserve Board's Division of Monetary Affairs who is now a resident scholar at the American Enterprise Institute in Washington. “The speculators think the authorities will blink, and the authorities think the speculators will run out of funds.''

By shutting the door on assistance for Lehman, Treasury Secretary Paulson and Fed Chairman Bernanke accelerated a plunge in the shares of other institutions perceived to face similar capital constraints. Merrill Lynch & Co., American International Group Inc. and Washington Mutual Inc. fell yesterday after a person familiar with Paulson's thinking said he was “adamant'' that no government money be used in resolving Lehman's shortage of funds. Fed officials are taking a similar stand.

Paulson and Bernanke are struggling to define which firms aren't too big to fail after the March bailout and merger of Bear Stearns Cos. and last weekend's seizure of Fannie Mae and Freddie Mac protected creditors, creating the perception the government would insure other firms against disorderly collapse.

Talks on Solution

Paulson, New York Fed President Timothy Geithner and Securities and Exchange Commissioner Christopher Cox are meeting with Wall Street chiefs for a second day of talks on how to resolve the Lehman crisis. New York Fed spokesman Andrew Williams declined to comment on the details of the discussions at his bank.

The favored solution presented by Paulson and Geithner is for a group of financial companies to contribute money to a so- called bad bank to assume Lehman's devalued real-estate assets, according to people briefed on the talks. A liquidation or sale of the company remain options.

After Bear Stearns, regulators face a no-win decision with Lehman, said former Representative Richard Baker, a Louisiana Republican who served on the House Financial Services Committee. “You bail them out, you are putting taxpayers' money at risk,'' Baker said. “You don't bail them out, you are facilitating the short sellers.''

Former Fed Chairman Alan Greenspan said in a Bloomberg Television interview yesterday that avoiding the use of government funds in the case of Lehman would be “the ideal solution.'' He wouldn't make odds on whether that would be the case.

Bear Precedent

“Once you put the line under Bear Stearns, that whole structure of financial and non-financial institutions above that automatically became too big to fail,'' Greenspan said.

The showdown comes at a precarious moment for the Fed and Treasury. The presidential elections are two months away. The central bank's interest-rate cuts, 3.25 percentage points over the past year, haven't translated into a free flow of credit at low rates for consumers, the Fed's own surveys show paydayloans.

Fed policy makers meeting next week will likely leave the benchmark rate unchanged, according to futures trading that also indicates a one-in-three chance central bankers will need to resume easing credit by year-end.

Reports this month point to a heightened risk of a recession. Unemployment rose to a five-year high of 6.1 percent last month, and retail sales fell 0.7 percent, excluding autos, the biggest decline this year.

`Fragile' Markets

“Financial conditions are extremely fragile,'' said former Fed governor Lyle Gramley, now a senior economic adviser for the Stanford Group Company in Washington. “With the Lehman situation deteriorating, this tends to have knock-on effects.''

In a sign that creditors don't expect Paulson to blink, the cost to protect against defaults by AIG, Merrill, WaMu and Wachovia Corp. reached records. Credit-default swaps on Seattle- based WaMu are trading at levels that imply a 75 percent chance the company will default in the next five years, a JPMorgan Chase & Co. valuation model shows.

“All of these firms are exposed to the real-estate market,'' said Len Blum, managing director at Westwood Capital LLC, a New York-based investment bank. Investors are “coming to grips with the reality that real-estate markets have been and will be in a decline.''

An index created by New York-based Credit Derivatives Research LLC that tracks credit-default swaps on 15 banks and securities firms, known as the CDR Counterparty Risk Index, rose 51 basis points the past week to 215 basis points, the highest since the collapse of Bear Stearns in March.

Cost of Protection

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 Fed, Treasury and financial system “are in a horrible situation,'' said Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico, which oversees about $46 billion. “You have investors at large firms like Lehman saying: Why can't you do it again?''

One problem hobbling regulators is that they don't have a transparent process for dealing with investment banks in the same way that the Federal Deposit Insurance Corp. does for handling troubled commercial banks. That leaves Fed and Treasury officials with emergency decisions that set new precedents and change market incentives with every bailout or failure.

“The big policy question is, do you need to preserve investment banks in the public interest?'' said Joseph Mason, a Louisiana State University finance professor who served in the bank-research division of the Office of the Comptroller of the Currency from 1995 to 1998. “We are at the inflection point,'' he said. “Failures keep getting bigger and bigger.''

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American Water Works Co. said Wednesday that its Pennsylvania American Water subsidiary has acquired a water system from Three Lane Utilities Inc. in Westfall, Pike County, for $1 million.

The system provides drinking water to about 400 people and commercial establishments. Hershey-based Pennsylvania American Water already provides water and wastewater services to nearly 6,200 people in Lehman and Delaware townships in Pike County and portions of neighboring Monroe County.

The transaction follows the company’s May 30 acquisition of the Mountain Top Estates system, which provides drinking water to about 180 people in Middle Smithfield, Monroe County.

Pennsylvania American Water provides water and/or wastewater services to more than 2.1 million people in Pennsylvania, and maintenance services to an additional 112,000 people in Pennsylvania.

American Water (NYSE:AWK) is the largest investor-owned U.S absolutely free credit report. water and wastewater utility company. Based in Voorhees, N.J., it provides drinking water, wastewater and related services to 15.6 million people in 32 states and Ontario, Canada.

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Ford Motor Co. will keep investing in new fuel-saving technology even if it doesn’t get any government loan guarantees, but the loans will help the automaker get the technology to market more quickly, Executive Chairman Bill Ford said Friday.

Congress reconvenes next week, and the auto industry plans an aggressive campaign to get lawmakers to guarantee up to $50 billion in low-interest loans. Auto executives say the money would help modernize assembly plants and develop next-generation vehicles.

Ford, in an interview at an event marking the upcoming 100th anniversary of the Model T, said the loans are important to help the industry deal with higher fuel economy standards, carbon dioxide emissions limits and a marketplace that has shifted from trucks to more fuel-efficient cars.

"I think it’s important to our whole industry, all the retooling we’re doing as an industry, to really meet the future demands of fuel economy and CO2 and all the new technology that’s really going to be needed to achieve that," Ford said.

The company that bears his family’s name, he said, will go on without the loan guarantees, but its work will be tougher.

"We’re fine, but this certainly would help," he said after signing hats, books and business cards for many of the more than 100 Model T owners who had gathered outside the company’s world headquarters. "It would just make everything more difficult, and we may have to go slower, and that’s clearly not what society wants."

Ford said the company doesn’t have a number in mind for how much it would borrow. But he said the government-backed loans, which Ford (F, Fortune 500) intends to repay, would mean the difference between single-digit interest rates and the double-digit rates now available in a tight credit market. That potentially could save the troubled automaker millions of dollars.

Ford has lost $23.9 billion in the past 2 1/2 years and has had to mortgage its assets to stay in business as the U.S bad credit payday loans. auto market has shifted away from profitable trucks and sport utility vehicles to more fuel-efficient models.

Mark Fields, Ford’s president of the Americas, said the loan guarantees are good for the country because they would help preserve an industry that is responsible for one in 12 U.S. jobs. They’re not a bailout, he said.

"This is not about benefiting Wall Street, like maybe some of the other actions that have been taken," Fields said. "This is benefiting Main Street, the working men and women. The auto industry is part of the backbone of the U.S. economy."

The federal government estimates that fuel efficiency and other requirements in the energy bill passed earlier this year will cost the auto industry around $100 billion, but Ford’s estimate is higher, Fields said.

He said the loan guarantees should be open to all manufacturers, whether foreign-based or domestic.

Bill Ford said the loans are important if the U.S. wants to have a strong industrial base, as other governments have financially backed their manufacturers. He also said the government should help decide what fuel-efficient technology U.S. automakers should embrace, so they can focus their capital investments.

Ford wouldn’t predict the chance of the loan guarantees getting through Congress.

"I’m very happy that both presidential candidates have endorsed this," he said. "The leaders of both parties are embracing this as something that they believe in, so that’s got to help us." 

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Prosecutors will argue to an appeals court that jurors would have convicted ex-Qwest CEO Joseph Nacchio on 19 felony counts even if a procedural error that excluded defense testimony had not been made in the executive's 2007 insider-trading trial.

The Denver-based 10th Circuit Court of Appeals holds a rare second oral arguments session Sept. 25 on Nacchio's appeal, which succeeded in reversing his conviction earlier this year.

The U.S. Attorney's Office submitted its brief for the hearing Friday, detailing in 72 pages why the Denver-based federal appeals court's March order for a new trial was in error.

A panel of three 10th Circuit judges overturned Nacchio's conviction March 17 in a 2-1 vote and ordered a second lower-court trial on the grounds that one defense witness, Daniel Fischel, an expert on stock market trends, had been improperly excluded from testifying before the jurors.

That jury convicted the former head of Denver-based Qwest Communications International Inc. (NYSE: Q) of fraudulently making $52 million from selling Qwest stock in 2001 while keeping shareholders in the dark about increasingly dire internal forecasts about the telecom's prospects.

The appeals court panel ruled that U.S fast cash online. District Court Judge Edward Nottingham didn't follow proper procedure when he decided that Fischel's testimony would confuse jurors and was unnecessary.

At the prosecution's request, the 10th Circuit agreed to reconsider the ruling, and next month judges on the court will review the decision instead of the typical three.

The government's filing for that hearing argues jurors would have convicted Nacchio even if Fischel had testified in 2007 and that, even if the appeals court thought Fischel could have swayed the jury, the appellate court should have simply ordered a new lower court hearing on the suitability of Fischel's testimony without demanding a whole new trial.

The hearing brief for Nacchio's defense is expected to be filed before midnight Friday.

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Membership at federally insured credit unions across the country grew 1 percent to 88 million members, with savings outpacing lending in the first six months of 2008, according to the National Credit Union Administration.

During that time, savings grew 7 percent. Lending grew 3.7 percent, and assets increased 6.5 percent between January and June.

First mortgage real estate loans grew by 10.1 percent from January through June 2008, according to Michael E. Fryzel, chairman of the administration.

Credit unions reported a loan-to-share ratio of 81 percent. All major loan categories grew from January to June, with the exception of declines in new automobile and other unsecured loans and lines of credit.

The first six months of first mortgage real estate loans represent $198.1 billion cashadvance.com. The administration reported other types of real estate loans grew 1.7 percent to $92.8 billion.

According to the report:

• Used automobile loans increased 3.3 percent to $92 billion
• Unsecured credit card loans grew 1.5 percent to $30.6 billion
• All other loans and lines of credit grew to $25.6 billion.