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Lehman Bros. to seek bankruptcy protection

NEW YORK, Sept. 15 (UPI) -- The troubled securities firmed Lehman Brothers, failing to find a buyer during the weekend, said Monday it would seek Chapter 11 bankruptcy protection.

As Lehman officials talked of liquidation, Merrill Lynch said it found a buyer -- Bank of America -- that will pay about $50 billion for the brokerage, The New York Times reported.

A financial crisis also is in the offing for insurance giant American International Group, also affected by staggering losses from the credit crisis, the Times said. AIG sought $40 billion from the U.S. Federal Reserve, indicating it could have only days to survive if it doesn't receive financial assistance.

"My goodness. I've been in the business 35 years, and these are the most extraordinary events I've ever seen," Peter Peterson, co-founder of the private equity firm the Blackstone Group, who led Lehman in the 1970s, told the Times.

To keep cash flowing in the financial markets, the Federal Reserve announced new lending procedures, while 10 major banks combined to create a $70 billion fund, The Washington Post reported.

The steps the Fed announced Sunday, Fed Chairman Ben Bernanke said in a statement, "are intended to mitigate the potential risks and disruptions to markets."

The U.S. Treasury Department and the Federal Reserve had stepped in several times previously to rescue the financial markets -- helping to broker a deal between Bear Stearns and JPMorgan Chase, then agreeing to bail out Fannie Mae and Freddie Mac.

Report: AIG seeks $40B Fed loan

NEW YORK, Sept. 15 (UPI) -- The U.S. insurance giant American International Group is seeking a $40 billion loan to keep it afloat in the face of a financial crisis, sources say.

AIG, with headquarters in New York, one of the biggest underwriters of complex debt deals known as credit default swaps, has appealed to the U.S. Federal Reserve for a massive loan in a last-ditch attempt to avoid a credit downgrade that could result in bankruptcy, The New York Times reported Monday, citing anonymous sources.

If it can't arrange the financing, AIG may survive not survive the week, the newspaper said.

AIG's desperate straits came to light over the weekend, when U.S. officials and Wall Street bankers were feverishly working to craft a rescue plan for New York investment bank Lehman Brothers, which was facing financial ruin from its exposure to the U.S. real estate credit crunch.

AIG's involvement in credit default swaps, which were dependent on a booming mortgage market, has forced it to raised $20 billion in financing this year to cover losses, the Times said.

U.S. defense chief Gates visits Iraq

BAGHDAD, Sept. 15 (UPI) -- U.S. Defense Secretary Robert Gates, visiting Iraq Monday, said significant risks remain despite recent security gains and reductions in U.S. combat troops.

Pro-government forces must ensure "al-Qaida isn't given the opportunity to regather its strength" and work to subdue Shiite special militias, Gates said in a New York Times report.

In addition, government leaders must press forward with provincial elections and other measures to achieve political reconciliation, Gates said.

"There are still people who would like to see this fail," Gates said before arriving in Iraq.

Gates said the question to meeting the challenges facing troops and government leaders in the coming months is, "How do we preserve the gains that have already been achieved, and expand upon them, even as the numbers of U.S. forces are shrinking?"

U.S. President George Bush announced he accepted recommendations from senior advisers to withdraw 8,000 troops and support personnel by early next year.

Besides meeting with Iraqi government officials, Gates is scheduled to meet with U.S. military personnel "to get the view from the troops' level of how things are going and whether their needs are being met."

He also will preside over a change-of-command ceremony in which U.s. Army Lt. Gen. Raymond T. Odierno will receive his fourth star and became the senior U.S. officer in Iraq, as outgoing commander Army Gen. David Petraeus takes command of U.S. military forces across the Middle East and Southwest Asia.

Post-Ike workweek begins, searches resume

HOUSTON, Sept. 15 (UPI) -- An altered workweek began Monday as Houston city workers were to return to work while search-and-rescue teams looked for people stranded by Hurricane Ike.

U.S. President George Bush said he will visit Texas Tuesday, warning it's "going to require time for people to recover," CNN reported.

U.S. Homeland Security Director Michael Chertoff said 80 trucks carrying food and water were heading for Houston.

Texas Gov. Rick Perry said 15 points of distribution for food and water would open Monday.

Steve McCraw, Texas Homeland Security director, said nearly 2,000 people who didn't evacuate for Hurricane Ike have been rescued along the southeastern Texas coast. Rescue officials planned to evacuate up to 10,500 Galveston residents.

The storm was blamed for at least 15 deaths in Texas and other states in its path as it moved through the nation's midsection after it made landfall during the weekend on the Texas coast along the Gulf of Mexico.

U.S. Energy Department officials said 2.6 million were affected by Ike-caused power outages.

The Energy Department said the storm closed 14 refineries, two Texas strategic petroleum reserve sites and 30 natural gas processing plants. The Texas Gulf area is home to about 25 percent of the United States' oil refining capacity.

At NASA's Johnson Space Center in Houston, a spokesman said it could be possibly next week before the facility was ready to resume normal operations, CNN reported. Teams of controllers near Austin, Texas, established a temporary control center.

Continental Airlines said it would resume service Monday at Houston's Bush Intercontinental Airport, the airline said in a statement. Continental Express and Continental Connection flights to and from Houston will operate at a reduced levels, the statement said.

Report: Pakistani army foils U.S. raid

ISLAMABAD, Pakistan, Sept. 15 (UPI) -- Two U.S. helicopters carrying troops allegedly were stopped Monday from entering the South Waziristan by the Pakistani army and local tribes.

Quoting unnamed sources, Geo TV reported the U.S. troops tried to enter Pakistani territory through Angoor Adda near the border with Afghanistan when local tribes and Pakistani troops opened fire, forcing the helicopters to return.

There was no confirmation of the incident either by Pakistani or U.S. authorities, the report said.

The tense tribal area in Pakistan is seen as a haven for Islamic militants who use it as a base to launch attacks against coalition forces in Afghanistan.

Separately, Pakistan's Dawn newspaper, quoting Pakistan's Frontier Corps, reported 18 militants died Sunday in clashes with the Pakistani security forces in another tribal area called Bajaur Agency.

The report said the fighting involved intense strafing and shelling by helicopters.