Barack Obama economic adviser Laura Tyson said at the Democratic National Convention on Monday that U.S. financial regulation needs modernizing, but hedged on how big a role to give the Federal Reserve.

Tyson, former chair of the Council of Economic Advisers in the Clinton administration, said she believes the Fed failed to crack down on subprime mortgage lending in recent years.

“What we have learned from the past two years … is that the old form of regulation is broken,” Tyson said.

View the full video conducted by Corbett B. Daly, Washington bureau chief for Thomson Reuters markets.  Click here for the related story from Reuters News.

Singapore wealth fund Temasek may have gotten hold of some bad stuff this year when it bought a 9 percent stake in Merrill Lynch. The stock has lost more than half its value since the purchase was announced in late December. But far from swearing off noxious bank assets, the flush Asian fund says it wants more. And why shouldn’t it? It just doubled its full-year profit by selling assets in local power and its national telecoms and airlines companies, as well by cutting a stake in Bank of China, so the toxicity of Merrill’s share price is not making it sick. Financials grew by two percentage points to 40 percent of its portfolio in the year through March and are likely to grow further, with Temasek saying it expects contagion from the credit crisis to spread. That should keep prices down for a while. Temasek said it will not cap its investments in the sector, but it was mum on whether it was thinking of taking on any Lehman exposure.

India’s largest oil producer ONGC has agreed a 1.4 billion pounds ($2.6 billion) takeover of Russia-focused oil explorer Imperial Energy Corp as it works to secure energy to fuel India’s booming economy. Imperial said ONGC’s overseas arm, ONGC Videsh, would pay 1,250 pence in cash for each of its shares in a deal that could double state-owned ONGC’s proved and probable reserves. This is less than the 1,290 pence approach Imperial said last month it was discussing with an unnamed bidder, which sources close to the matter identified as ONGC. Investors aren’t wholly convinced though, with the shares trading down more than 1 percent this morning after rising sharply in recent weeks on hopes for a bidding war.

Infosys Technologies agreed to buy British consultancy Axon Group for 407 million pounds ($753 million) as India’s second-biggest software services exporter looks for growth beyond an uncertain U.S. market. The cash deal values Axon at six pounds per share, a 19.4 percent premium over Friday’s close of 5.025 pounds and 33 percent over the average price of the last six months, Infosys CEO Kris Gopalakrishnan said. The stock has risen to 611, and Infosys shares have taken a hit as expectations rise another bid will emerge. Altium Securities said in a note it believed there was room for a counterbid closer to 700 pence.

Other deals of the day:

* Hyundai Heavy Industries, the world’s top shipbuilder, expressed its interest in Daewoo Shipbuilding, joining three other major bidding groups vying for its smaller rival. State-owned Korea Development Bank (KDB) and a government agency have put up for sale their combined 50.4 percent stake in the world’s No. 3 shipbuilder, in a deal estimated to fetch up to $8 billion, more than double Daewoo Shipbuilding’s current market price.

* Bluescope Steel, Australia’s top steel maker, will sell its New Zealand iron sands mining operation for NZ$250 million ($176 million) to Hong Kong’s Cheung Kong Infrastructure Holdings, the company said.

* Pennar Industries said Hyderabad’s JR Realtor Services had acquired 13 million shares, or 10.28 percent of its share capital.

Lufthansa has said it is interested in acquiring a stake in Austrian Airlines. Austrian state holding company OeIAG has invited bidders for its 43-percent stake in the carrier, worth about $223 million.

It’s a small deal, but it’s a big deal.

If Austrian’s board picks Lufthansa, the German carrier will own nearly half of Austria’s main carrier. And that could spur more consolidation — or partnerships at the very least — among other airlines, analysts said.

Lufthansa, affectionately known as Lufthie, is on a spree. In December, the airline bought a 19-percent stake in JetBlue Airways for about $300 million.

Under U.S. law, no foreign airline can own more than 25 percent of a U.S. airline.  By limiting its stake to 19 percent, Lufthansa remains below federal limits on foreign ownership of a domestic airline.

But the passive investment includes a representative on JetBlue’s board and opens up an opportunity for Lufthansa to make a bigger deal down the road.

Also, the “open skies” agreement is sure to increase competition among carriers — in Europe and in the United States. 

As airlines like Lufthansa take stakes in more airlines, and other carriers hold merger talks (British Airways and Iberia are in merger discussions while the two also entered a partnership with American Airlines earlier this month), airlines not in the middle of any talks could find themsleves left out in the cold.