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09/12/2008 EE,NY LD

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Weekend Journal: The New Pranksters

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F R I DAY, S E P T E M B E R 1 2 , 2 0 0 8 ~ VO L . C C L I I N O . 6 2
NIKKEI 12102.50 t 2.0% DJ STOXX 50 2807.54 t 0.5% 10-YR TREAS s 5/32, yield 3.622% OIL $100.87 t $1.71 GOLD $741.30 t $16.60

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DJIA 11433.71 s 164.79 1.5%

NASDAQ 2258.22 s 1.3%

EURO $1.3947

YEN 107.16

Whats News
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Lehman Races to Find a Buyer

Bank of America Is Said to Be in Preliminary Talks; U.S. Plays Matchmaking Role
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Business&Finance

World-Wide

ehman was actively shopping itself to potential buyers that include Bank of America, a day after it announced moves to patch up its massive real-estate-related losses. The Fed and Treasury have been working with Lehman to help resolve the banks troubles, including talking to potential suitors. Lehmans shares dropped 42%. A1, A14 n Troubles at Lehman and other financial firms have policy makers struggling with what steps to take next. A1 n Lehman employees, including top executives, have now lost an estimated $10 billion or more in paper wealth. C1

n Texas residents braced for the arrival of Hurricane Ike. Officials in Houston and nearby counties began ordering evacuations of low-lying coastal areas. The storm was expected to pick up strength and speed over the Gulf of Mexico before making landfall before dawn Saturday just south of Houston. Forecasters expect Ike to be a Category 3 hurricane with winds that could top 100 mph. A3 Ikes projected path puts its strongest winds and tides on a crash course with the areas refineries and chemical plants. n The nation marked the seventh anniversary of the Sept. 11 attacks with tributes and a visit to the World Trade Center site by McCain and Obama.

The investment bank Lehman Brothers Holdings Inc. spent Thursday energetically shopping itself to potential buyersamong By Matthew Karnitschnig, Carrick Mollenkamp, Susanne Craig and Annelena Lobb themBank ofAmericaCorp.just a day after insisting it had found a way to patch up its massive realestate-related losses. Given the firms deep financial troubles, a deal of any sort is far from certain, according to people familiar with the situation. In addition, prospective buy-

Spreading Impact
u Lehmans woes take heavy toll on executives and rank-and-file, who hold 25% of the firms stock . . . . . . . . . . . . . . . . C1 u u

Washington Mutual says it can ride out crisis Heard on the Street: Vicious circle

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ers, which also could include Barclays PLC, would likely want the U.S. government to help shield them from future losses from any such transaction, these people said, as happened in March, when Bear Stearns Cos. was forced into a deal to be acquired by J.P. Morgan Chase & Co. In

that deal, the federal government agreed to absorb as much as $29 billion in potential losses. The Federal Reserve and TreasuryDepartment have beenworking with Lehman to help resolve thebankstroubles,includingtalking to potential buyers, according to people familiar with the mat-

ter. Federal officials currently arentexpectedtostructureabailout along the lines of the Bear transaction or this past weekends rescue of mortgage giants Fannie Mae and Freddie Mac. Resolving the mess at Lehman could help stem a wave of pessimism that the U.S. financial system faces the prospect of much deeper turmoil because of bad loans and the weak economy. Late Thursday, Washington Mutual Inc. rushed out some details about its third-quarter results in hopes of ending a 34% slide in its stock price so far this week. In better times, Lehmans Please turn to page A14

n WaMu said it has enough liquidity and capital to ride out the banking crisis, as it sought to reassure investors. C1 n Underwriters sold $228 million of Clear Channel bonds, well below the level the banks had hoped to offload. C2 n The Dow industrials rose

Credit Crisis Strains Governments Options

By Jon Hilsenrath, David Enrich And Deborah Solomon
A year into a credit crisis that started with troubled mortgages to sketchy borrowers, the financial system is reeling once again, casting a pall over a widening array of financial institutions just days after historymaking efforts by policy makers to contain the problem. With the share prices of Lehman Brothers Holdings Inc., Merrill Lynch & Co. and other financial firms on a roller coaster, the crisis could be entering a critical stage. The Federal Reserve has already slashed interest rates to counteract a deepening credit freeze and instituted its broadest expansion of lending facilities since the Great Depression to keep financial markets functioning. Over the weekend, the nations two main mortgage finance firmsFannie Mae and Freddie Macwere placed under government control. Federal officials and market players are struggling with the same issues: Why havent the steps taken so far calmed the system? What can policy makers do next? Should the U.S. government let a big institution fail rather than stage another potentially costly bailout? Lehman, one of Wall Streets last big independent firms, saw its stock plunge 42% a day after the company unveiled a plan to shrink itself as a way to ride out the crisis. It is now in talks to be sold altogether, though its not clear there will be takers. The Federal Reserve and Treasury Department have been working with Lehman to help resolve its troubles, including talking to potential buyers, according to people familiar with the matter. A rescue like those of Fannie, Freddie and Bear Stearns Cos. isnt currently expected, but much can change in the days ahead. Merrill Lynch shares were down 17% to $19.43 a share Thursday. Washington Mutual Inc., the nations largest savings and loan, which replaced its CEO this week, came under heavy selling pressure early in the day. After dipping below $2, the stock rallied to gain 51 cents to finish at $2.83 in 4 p.m. New York Stock Exchange Composite trading. The stock is still down 34% since Monday. In some ways, broader financial markets are taking the latest drama in stride, a cause for some reassurance. The Dow Jones Industrial Average has

164.79 points, or 1.5%, to 11433.71. A rally from a deficit of over 170 points was aided by an upturn in financial stocks. C1 n Crude slipped $1.71 to $100.87, near a six-month low, as weak demand continued to drive the market lower. C12
n The next U.S. president will face slow growth and an economy teetering toward recession, say economists in a Wall Street Journal survey. A13 n The U.S. trade deficit grew in July to its highest level in 16 months as record oil prices offset a surge in exports. A2 n The CFTC called for new tools to assess speculators impact on commodity prices as a study by the futures-markets regulator was inconclusive. C3 n Individual investors who owned stock in Fannie and Freddie say they feel they were misled by Treasury officials prior to the takeover. C1 n Treasury backed the preferred-stock-purchase deal, suggesting it would be difficult for the pact to be modified. A5 n The housing market may be near a bottom, the co-creator of the S&P/Case-Shiller index of home prices said. A5 n NBC Universal has sold

The U.S. has deployed commandos inside Pakistan without permission and expanded airstrikes as it steps up its battle with Islamic militants there. A11 n Militants killed two U.S. troops in Afghanistan, making 2008 the deadliest year ever for American forces there.
n n Palin said NATO should admit Georgia and Ukraine and the U.S. could use force to defend Georgia, in her first major interview as a candidate. A6 n Bill Clinton plans to campaign for Obama, the two said after their first meeting since the Democratic primary. A6 n Senate finance leaders put forward a $40 billion package of tax credits for renewable-energy investors. A5 n Congress sent Bush an $8 billion rescue package for the federal highway trust fund, which risked running out of money. n

Sens. Barack Obama and John McCain, pictured with Cindy McCain, called a truce in political advertising Thursday, as they visited Ground Zero on the anniversary of 9/11. Campaign coverage on Pages A6, A8 and A9. traded in a range between 11200 and 11800 since July. Though the Dow is down for the year, stocks in Europe and Asia have performed much worse. Among the reasons for optimism: Falling oil prices could eventually provide relief to consumers and a stronger dollar has taken pressure off inflation. U.S. officials hope that the rescue of Fannie and Freddie will help lower mortgage rates, and financial firms have already raised billions of dollars of fresh capital. But other measures of financial conditions are as bad as they were back in March, when the Fed and Treasury arranged the abrupt takeover of Bear Please turn to page A13

House Democrats said they will demand tougher rules to deter unethical conduct at the Minerals Management Service. A3 South Africas president said Zimbabwes Mugabe and opposition leader Tsvangirai agreed to a power-sharing deal. A10

about 85% of the available Super Bowl ad spots. Several advertisers are paying $3 million for 30 seconds of ad time. B1
n Hank Greenberg and three

Putin defended the invasion of Georgia and said Russia has no intention of encroaching on its sovereignty. n Fewer than 100 civilians died in Georgias breakaway province of South Ossetia in Augusts war, rights activists said.
n n Olmert said he would re-

Pilot Fatigue Spurs Calls for New Safeguards

By Andy Pasztor And Susan Carey
Safety experts and regulators have long been concerned about the dangers of exhausted, overworked or downright sleepy pilots. But the problem is intensifying as financially strapped airlines try to squeeze more productivity out of pilots, who by most measures are logging more hours per month and flying more grueling schedules than at any time since 2001. Many big airlines with new labor contracts bargained in bankruptcyor under threat of it have many pilots flying up to an extra 10 or 15 hours each month, closer to the 100-hour maximum allowed by the Federal Aviation Administration. Thats in addition to layovers and time spent on ground duties. Flight schedules that look manageable on paper often dont account for storms, air-traffic congestion or other potential delays that can make a long work day longer. In July, according to the latest government statistics, 19 U.S. airlines saw one quarter of

others settled for $115 million a 2002 lawsuit involving the insurance firm the former AIG chief heads. C3
n King Pharmaceuticals

sign as Israels prime minister immediately after his party picks a new leader next week. n Two bombs exploded along Gazas border with Israel, the first such incident since a cease-fire took hold in June.
n North Koreas Kim Jong Il had brain surgery after a stroke and could have partial paralysis, South Korean media reported. n The U.S. expelled Bolivias ambassador after Morales ordered out the U.S. envoy for allegedly aiding the opposition. n Antigovernment protests in Bolivia mounted. At least three people were killed. n Venezuelas Chvez expelled the U.S. ambassador after saying his government detained conspirators plotting a coup. A10 n The FDA urged consumers to avoid Chinese baby formula amid reports some may be contaminated with melamine. A10 n

Airport Relief
u FAAs new air-traffic procedures to cut fuel use and emissions . . . . . . . . . . . . . . A5

raised its offer for Alpharma by 12% and is taking the $1.6 billion bid to shareholders. B2
n Allergan said two tests of its Botox drug showed that periodic injections prevent headaches in adults who suffer from chronic migraines. B3 n MGA Entertainment is prepared to seek a settlement with Mattel in order to resolve a dispute over the Bratz doll line. B6 n Ticketmaster sought to allay concerns about rival Live Nations poaching of a client as shares fell more than 17%. B6 n Campbell Soups net rose

all theirflights, on average, arrive late by more than 15 minutes. And pilots say certain airlines schedule flight times at or just under eight hoursthe FAA-mandated limitthat apilot can be behindthe controlsper dayontrans-Atlantic routes that regularly run longer, so they dont have to pay for an extra pilot. Now, pilots and safety experts are stepping up pressure on the FAA to rewrite rest and scheduling regulations that basically havent been updated since

the 1960s. Critics say the rules dont reflect the current flying reality, and are based on outdated science that ignores the latest sleep research showing the cumulative impact of inadequate rest. At a hearing earlier this year, several National Transportation Safety Board members and staffers expressed concern that the U.S. was in danger of falling behind other countries in combating pilot fatigue. After working more than 12 hours in a rowinside and out of the cockpiterror rates shoot up, complacency increases and communications become impaired, says Peter Demitry, a former test pilot and fatigue expert who consults for pilot groups. One symptom of fatigue that scientists are now studying is micro sleep, when pilots become unresponsive for a few seconds or a minute, though their eyes are open. The NTSB identifies tired pi-

lotsas oneofits10MostWanted safety improvements, linking at least 10 U.S. airliner accidents and 260 fatalities to fatigue since 1990. Hundreds more close calls havebeenreported topilotunions andconfidentialfederalsafetydatabasesovertheyears.Fatigue-related mistakes have included pilots forgetting to extend flaps before takeoff, inadvertently shutting down engines in midair, and losing track of a planes position on final approach. In several cases, crew members have nodded off at the controls. Airline officials say their own internal programs help counter fatigue and allow pilots to stop flying if they feel unsafe. And overall, jetliner accidents in the U.S. are at historically low levels, with the last crash of a widebody jet occurring nearly seven years ago. New rules have to be based on conclusive research, not anecdotal evidence, says Please turn to page A14

46% on higher sales but continued increases for ingredient costs hurt margins. B4
n Auto sales in India fell for the second straight month in August, adding to concern for the global auto industry. B4 n New Zealands central bank

A fire broke out on a train under the English Channel, injuring six people and shutting down traffic in the tunnel. A11

Palins Style Sparks Buying Frenzy, And Fashion Firms Rush to Cash In
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cut its benchmark rate by a half-percentage point. A10

n Thailands ruling party renominated Samak as prime minister, just days after he was forced from his post. A11

Wig Sellers Capitalize on Upswept Hairdo; Naughty Monkeys Red Heels Get a Lift

TODAYS AGENDA

PPI Forecast to Fall, No Sizzling Expected Aided by Commodities In August Retail Data
PPI The producerprice index is ex1.2% pected to slip 0.4% 0.4% for August, after a 1.2% jump July Aug. logged for July, (exp.) reflecting how oil and other commodities prices have come down somewhat. The core rate is seen rising 0.2%. Labor Dept. 8:30 a.m. EDT

August retail sales are likely to look tepid, as consumers have been battered by rising costs and dreary economic news. Consensus forecast: a rise of 0.25%. Without autos, a drop of 0.2%. Census Bureau, 8:30 a.m. EDT. New York Fashion Week wraps up.

Follow the news all day at WSJ.com

CONTENTS Campaign 08 .....A6,8,9 Corporate News ..B2-4,6 Currents .......................A12 Heard on the Street ...C12 International Finance ....C2 Letters to Editor ....A16 Media & Marketing .......B7 Opinion .....................A15-17 Stocks in the News ..C6 Technology ....................B5 Weather Watch .....B10 Whos News .................B6 World News ........A10,11

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with style tips to instantly achieve the swept-back style. Obviously were going to get a jump from this, says Joe AronFashion companies have dis- esty, owner of WigSalon.com. In covered a lucrative new market- the past week, the company has sold about 25 Palin-esque wigs, ing vehicle: Sarah Palin. Since John McCain chose her ranging in price from $100 to the last month as his running mate, Bargain Sarah Palin wig for Gov. Palins personal style has $46. And its not even close to sparked a buying frenzy. Many Halloween, Mr. Aronesty says. Early next week, Mr. women are snapping up Aronesty plans to send her choices of shoes and a newsletter to his eyeglasses and blogging 25,000 subscribers aboutwhichbrandofliphighlighting Palin wig stickshewears.Hairstyloptions and styling ists and wig sellers retips. port sudden demand for Fashion firms have her trademark up-dos. Sarah Palins shoe long boasted when ceIndeed, the brands behind Gov. Palins fashion taste lebrities and first ladies wore have gone into overdrive seeking their clothing and accessories, of course. Jacqueline Kennedy to cash in on the association. On Wednesday, WigSalon.com lent cachet to Oleg Cassini gowns issued a news release boasting and Halston pillbox hats during that it has wigs and hair pieces the 1960s. This year, the sight of that reflect the new looks made Michelle Obama in a $148 blackPlease turn to page A9 popular by Sarah Palin, along

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