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09/06/2008

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By Kelly Evans,

Bob Davis

And Tom Lauricella

A jump in the unemploymentrate to 6.1% in August, the high-est in nearly five years, under-scored the economy’s fragilityand deepened political debateover whether a second stimuluspackage is needed.

The jobless-rate jump, from5.7% in July, was larger than an-ticipated, reflecting how energyprices and problems in the hous-ing and financial sectors have ra-diated outward to slow overalleconomic activity.

Nonfarm employers shedsome 84,000 jobs, after revisednet declines of 60,000 in Julyand 100,000 in June, accordingto a Labor Department survey.That brought net job losses sofar in 2008 to more than600,000.

“It’s clear at this point thatbusinesses are battening downthe hatches and worried aboutthe persistence of this slow-down,” said Bank of America se-nior economist Peter Kretzmer.“They may be preparing them-selves that this won’t be some-

Please turn to page A4

U.S. Near Deal on Fannie, FreddiePlan Could Amount to Government Takeover; Management Shakeup Is Expected

By Joel Millman

STERLING HEIGHTS,Mich.—If John McCain becomesthe nation’s 44th president, it maybe thanks to Michigan—a prizethe Republicans think they canclaim for the first time in 20 years.

On Friday, Sen. McCain andhis running mate, Sarah Palin, ar-rived in this auto-plant town inDetroit’s suburbs to begin theirfinal election sprint. The goal:Persuade disaffected voters likeHoward Mitchell that Republi-cans still deserve their support.

Mr. Mitchell, a 28-year-oldvideo technician at an auto plantin nearby Pontiac, would seem apromising target for the Demo-crats this year. In 2000, hebucked his Republican neigh-bors and voted for Al Gore forPresident. And while he backedGeorge W. Bush in 2004, todayhe is angry about Michigan’sweak economy and nervousabout the handling of Iraq. Mr.Mitchell says he wants change.

The good news for Republi-cans: Sen. McCain offers plentyof change for him.

“What bothers me most withObama, he has no experience,”says the burly, tattooed, di-vorced father of one, who sayshe’s working two jobs now to af-ford health insurance for hisdaughter. “I believe in change,too. But what kind of change isObama talking about?”

Michigan is a perennial must-win for Democratic candidates,as well as a bellwether for howthe party will fare in nearbyOhio, Wisconsin and Pennsylva-nia. This week, the Obama camp

Please turn to page A12

McCain Makes a Run at Michigan,

A Wavering Democratic Stronghold

7 7

A NewView

On TV

Economists Probe the Data on Television Watching

And Find It’s Not All Bad; Better Test Scores?

MONEY & INVESTING:

Investors may be hedge

funds’ biggest threat | B1

Roth, Lehane, Updike:

a starry book season | W3

Countdown: Senators Barack Obama and John McCain enter the final campaign stretch. Full coverage on Page A5.

This Job Stinks:

Chemists Embark

On Quest for Odori i i

Team Harvests SmellsSo It Can Fight Them;5-Liter Sample of Dog

T he Treasury Departmentis putting the finishing

touches on a plan designed tohelp shore up Fannie Maeand Freddie Mac by puttingthem into the conservator-ship of their regulator. Themove would essentially re-sult in a government take-over of the mortgage giants,at least temporarily. A1

n The jobless rate hit 6.1% lastmonth, the highest in nearlyfive years, deepening politicaldebate over whether a secondstimulus package is needed. A1n The Dow industrials rose32.73 points to 11220.96despite early losses followingthe jobs data. The index wasdown 2.8% for the week. B1

n Boeing’s machinists unionplanned to begin a strike afterfailing to reach an agreementduring last-minute negotia-tions for a new contract. B5

n The rate of U.S. home mort-gages overdue or in foreclo-sure surged again in the sec-ond quarter, a survey found. A3

n Altria is in talks to acquireUST, the nation’s largestsmokeless-tobacco maker, formore than $10 billion. B5, B16

n Regulators clamped downagain on Downey Financial, or-dering the bank to raise capi-tal and take other actions. B3

n College Loan Corp. is sus-pending the remaining partof its student-lending busi-ness after it lost funding. B2

n The dollar’s resurgenceagainst the euro and othercurrencies may cut into theprofits of U.S. companies. B1

n Key investors of hedgefunds are demanding theirmoney back, promptinghedge-fund managers to sellsecurities to raise cash. B1

n Russia’s stock market sankto its lowest level in two yearsamid fears the nation is feelingthe global slowdown. B3, B16

n Nokia cut its market-shareoutlook, citing a weaker econ-omy world-wide and a decisionto refrain from price cuts. B6

n Samsung’s interest in buy-ing SanDisk is the latest signof consolidation pressures fac-ing the chip industry. Sharesof SanDisk jumped 31%. B6

>

7 7

What’s News–

n Rice met with Gadhafi ina historic visit to Libya.Putting to rest 40 years ofenmity, the U.S. secretary ofstate visited the Libyanleader at his militarycompound and pledged todevelop broad strategicrelations. Libya is beingreintegrated into the globalcommunity followingGadhafi’s 2003 renunciationof terrorism. A6

Libya has vowed to pay morethan $3 billion to Americanvictims of Tripoli-linkedterrorist attacks.

n Tropical Storm Hannamoved closer to a landfall inthe Carolinas, as HurricaneIke continued along its pathtoward south Florida andthe Gulf of Mexico. A3

n The panel that setssentencing guidelines forfederal courts is planning tofocus on alternatives toincarceration. A3

n McCain would have tomake compromises with theDemocrats on his tax,energy, environment andhealth-care plans if he iselected president. A1, A5

n The Bush administrationreversed its opposition to aplan backed by Democrats toprovide $8 billion in emer-gency funding to pay fortransportation projects. A7

n An FDA report listed 20drugs being investigated forside effects, hoping to warnpatients and health-care pro-fessionals. A4

n Cheney warned Ukraine’sleaders to settle theirdisputes or risk limiting thehelp they can expect infending off Russia. A7

n Bush will announce his de-cision on troop levels in Iraqnext week and is expected toreduce the number by up to8,000 by mid-January. Theplan calls for keeping 15 com-bat brigades in Iraq until theend of the year.n The Iraqi governmentreacted sharply to publishedallegations that the U.S. spiedon its prime minister.

n Pakistan’s Supreme Courtreinstated three judges whowere ousted by Musharraf,cementing political divisionsin the country a day before itelects a new president. A7

n The LPGA Tour backedoff a plan that would havesuspended players unable toefficiently speak English atgolf tournaments. A2

n Died: Robert Giroux, 94, agiant of 20th-centurypublishing who guideddozens of great writers, inTinton Falls, N.J. ... MilaSchoen, 91, an Italiandesigner of elegant,impeccably tailored clothes,near Alessandria, Italy.

C O N T E N T SBooks W3,W8The Buzz B3,B4Campaign ’08 A5Corporate News B5,B6Food & Drink W5Leisure & Arts W9,W12

Letters to Editor A10Markets Lineup B4Opinion A9-A11Remembrances A12Sports W4U.S. News A2-A4World News A6

s Copyright 2008 Dow Jones & Company All Rights Reserved

—Inside—

Jobless RateTops 6%,Fueling FightOn Economy

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By Ellen Byron

Rich Payne stepped into Rose-marie Gulizio’s home in Middle-town, N.J., and inhaled the scentof stale cigarettes. “This is goingto be great,” he said.

Holding a glass tube that hadbeen stuffed with absorbentpowder and attached to a vac-uum cleaner, Mr. Payne soakedup the smell of old smoke. Hesucked some air from around afreshly snuffed butt—“you pickup more green notes at thisstage,” he said—and took a read-ing from a lit cigarette.

His boss, Judy Kerschner,spotted Ms. Gulizio’s 14-year-old dog, Nicki, and set off after itwith the air-sampling appara-tus. The Labrador settled into anarmchair, giving Ms. Kerschnerenough time to sample five litersof dog-infused air.

Chemists by training, Ms. Ker-schner and Mr. Payne are en-gaged in what they call a “scenttrek.” Their mission: To harvestreal-life household odors, includ-ing smoke, garbage, sweat andmildew, replicate the smells inthe lab and then find new waysto counteract them.

Their employer, Interna-tional Flavors & Fragrances Inc.of New York, has built a $2.3 bil-lion-a-year business concoctingtastes and smells, including

Please turn to page A8

The Political Party is OverWeekend

By Justin Lahart

It didn’t take long after America startedtuning in to television that people started toworry about what it was doing to children.“When it offers a daily diet of Western pic-tures and vaudeville by the hour, televisionoften seems destined to entertain the childinto a state of mental paralysis,” wrote TheNew York Times in 1949.

A generation later, the Scholastic Apti-tude Test scores of college-bound teenagershad fallen significantly. A 1977 panel ap-pointed by the College Entrance Examina-tion Board suggested television bore someblame for the drop. Indeed, the decline be-gan in the mid-1960s, just as the first stu-

dents heavily exposed to TV took their SATs.But University of Chicago Graduate

School of Business economists MatthewGentzkow and Jesse Shapiro aren’t surethat TV has been all that bad for kids. In apaper published in the Quarterly Journal ofEconomics this year, they presented a seriesof analyses that showed that the advent oftelevision might actually have had a posi-tive effect on children’s cognitive ability.

The two are part of a tight-knit group ofyoung economists using statistical tech-niques to examine how television affects so-ciety. The group’s research suggests TV en-abled an earlier generation of American chil-dren in non-English-speaking households to

Please turn to page A8

7 7

–Markets–Stocks (Friday):DJIA 11220.96, s 32.73;Nasdaq 2255.88, t3.16;S&P 500 1242.31, s5.48.Bonds: 10-year Treas. t4/32,yield 3.658%; 30-yearTreas.s 3/32, yield 4.276%.Dollar: 107.22 yen, +0.13; euro$1.4233, –0.89 cent vs. the

dollar.Commodities: Oil $106.23 abarrel, t$1.66; Gold (Comex)$797.60 per troy ounce,t0.30; DJ-AIG index178.582, t3.303.

i i i

Business & FinanceBy Deborah Solomon

And Damian Paletta

WASHINGTON—The Trea-sury Department is putting thefinishing touches to a plan de-signed to shore up Fannie Maeand Freddie Mac, according topeople familiar with the matter,a move that would essentially re-sult in a government takeover ofthe mortgage giants.

The plan is expected to in-volve putting the two companiesinto the conservatorship of theirregulator, the Federal Housing Fi-nance Agency, said several peo-ple familiar with the matter.

That would mean the govern-ment would take the reins of thecompanies, at least temporarily.

It is also expected to involvethe government injecting capitalinto Fannie and Freddie. Thatcould happen gradually on aquarter-by-quarter basis, ratherthan in a single move, one per-son familiar with the mattersaid.

In addition, Treasury’s planincludes a top-level manage-ment shakeup at both compa-nies, according to people famil-iar with the plans. Daniel H.Mudd, chief executive of FannieMae, and Richard Syron, his

counterpart at Freddie Mac, areexpected to step down fromtheir posts eventually.

An announcement couldcome as early as this weekend.Some details are still beingworked out, and terms of the ar-rangement could change.

Any move by Treasury wouldrepresent perhaps the most sig-nificant intervention by the gov-ernment in the financial indus-try since the housing busttouched off turmoil in the creditmarkets a little more than a yearago. From the $168 billion eco-nomic-stimulus package in Feb-ruary through the bailout of in-

vestment bank Bear StearnsCos., the Bush administrationand the Federal Reserve havetaken an increasingly aggressivestance in responding to what hasbecome one of the worst finan-cial crises in decades.

Fannie and Freddie are vitalcogs in the U.S. housing market.Their troubles have threatenedto worsen the bursting of thehousing bubble, which has led toa surge in foreclosures. (Pleasesee related article on page A3.) ATreasury intervention couldhelp Main Street borrowers bykeeping interest rates on mort-

Please turn to page A7

How true love conquered

a cultural clash

over barbecuing

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WSJ.com

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