Will presidential candidates say anything to pander to voters? Last week I took John McCain to task for his dumb idea of spending $300 billion to buy mortgages so that so-called homeowners can be bailed out instead of Wall Street banks. The highlights of the McCain plan are the determination of who is creditworthy as well as a pre-determined, finger-in-the-wind interest rate of 5%, which sounds so attractive to me that I’d like one of those too.

Even better would be the ability of those of us who are current on our mortgages to participate in one of Barack Obama’s latest proposals to save the economy, a three-month moratorium on foreclosures for mortgage holders who are trying “in good faith” to pay their mortgages but can’t. I wouldn’t mind skipping three months of mortgage payments, assuming I didn’t face a penalty for doing so. I promise I’d put the money to good use too. Maybe I’d buy a car.

Obama has done a relatively good job so far on the pander-meter, such as when he stayed away from the gas-tax holiday McCain and Hillary Clinton advocated last summer. Then there’s this idea, which might buy some votes but isn’t likely to sit right with people who really do own a piece of their homes because they are current on their mortgages.

The execution of a moratorium would be interesting. Would borrowers still owe the full amount, including interest, they didn’t pay during their mortgage holiday? How to determine “good faith?” Does Obama plan for the Treasury to compensate banks for the non-payments or for the time the bank loses between foreclosing and attempting to recover something for their seized asset?

The good news is that, as far as whose plan wins out, we’ll know soon enough.

I’ve been trying hard to understand John McCain’s mortgage proposal. Here are my two favorite elements: 1) that all troubled but heretofore creditworthy mortgage holders would be eligible to participate; and 2) that once the government purchased their mortgage it would then lend the money again, pegged to the “new” value and, importantly, at a 30-year-fixed rate of 5%.

Let’s take these one at a time. McCain’s definition of creditworthiness seems to be that the borrower didn’t falsify information at the time of the initial loan and that they “provided a down payment.” This is silly in the extreme. It’s plainly obvious that all sorts of people couldn’t afford the homes they bought, whether or not they told the truth and whether or not they had good credit. Simply having made a down payment isn’t particularly meaningful, either. The size of the down payment and the validity of the appraisal are far more relevant.

As for McCain boldly suggesting that 10 million “homeowners” (I use quotes because these poor souls are renters, not owners) should receive a fixed-rate mortgage at 5%, about a full percentage point below the current rates, I repeat my thought when various politicians and policymakers floated a similar idea last year: I want my mortgage rate frozen too. It’d be lovely to get a below-market-rate mortgage, and doesn’t McCain think the folks who acted prudently when they bought their homes would like a break too? I know I would.

***

I read an interesting quote in The Wall Street Journal earlier in the week, back when Americans had lost only $2 trillion in their retirement plans in the previous 15 months. The article ended with the following suggestion:

Teresa Ghilarducci, a professor of economic policy at the New School for Social Research in New York, said Congress should let workers trade 401(k) assets to the government – perhaps valued at mid-August prices – for a retirement account composed of government bonds. She called the 401(k) a “failed experiment.”

My first reaction to this was, ‘What a ridiculous suggestion.’ Re-pricing bad decisions being guaranteed valuations from another time and place? Who wouldn’t take that offer and imagine how much it would cost the government? No way. Then I thought for a moment about all the crazy things the government is doing, and suddenly this idea didn’t quite so ludicrous.

***

The Journal had comments today from Sequoia Capital and Benchmark Capital, two prominent VC firms, advising their portfolio companies to hunker down. Ron Conway, a successful and well connected ‘angel’ investor, had this advice earlier in the week for companies in which he has invested:

The message is simple.  Raising capital will be much more difficult now.

You should lower your “burn rate” to raise at least 3-6 months or more of funding via cost reductions, even if it means staff reductions and reduced marketing and G&A expenses.  This is the equivalent to “raising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible.  Letting go of staff is hard and often gut wrenching.  A re-evaluation of timelines and re-focus on milestones with the eye of doing more with less will allow you to live many more days, and the name of the game in this environment in some respects is survival–survival until conditions change.

 

 

***

And finally, an e-mail from Fortune Managing Editor Andy Serwer, who happened to be in San Francisco at the beginning of the week: “New Wachovia branch .. on the corner of Geary and Market …Big sign in the window: ‘Coming soon!’ … Actually, not.”

I have 251 “friends” on Facebook. That’s incredible to me, since I never use Facebook. On my Facebook home page, I also have 103 friend requests I’m not likely to accept, 66 “other requests” I’ll probably never read and four suggestions about which I have no intention of learning.

Once, I probably could be accused of not “getting” Facebook. That’s not true anymore. I get it. I think it’s not only a great way for friends (more on that charming concept later) to keep in touch with each other. It’s also a compelling form of entertainment.  In “researching” this post, I spent quite a few enjoyable minutes reading about some of the things people I know are doing.

So why don’t I use Facebook? First of all, I can barely get through my e-mail inbox each week. I definitely can’t finish the three newspapers I get each day, and I really like to read them. They’re loaded with nontrivial information. When I am in the mood for mush, however, I’d so much rather be watching mindless television than spending even more time in front of a computer.

But that’s not the only reason. I’m a really gregarious guy. I have lots of friends and even more acquaintances. But 354 bosom buddies with whom I’d like to share the most intimate details of my life? Definitely not. One thing I’ve considered doing is suggesting to all my business contacts who have attempted to “friend” me on Facebook that instead we be “contacts” on LinkedIn. Then I could manage down my friend list on Facebook to, well, my friends.

Incidentally, it’ll be interesting to see how Facebook does in a rough economy. Jeff Segal at Breakingviews.com posted a compelling piece on how the startup, which is leaking top executives, will likely need to raise more money soon. Smart startups are busy conserving cash and Facebook is distributing it. That’s an effect I’d like to read about in my buddy David Kirkpatrick’s book on Facebook next year.

Tuesday night’s “town-hall” meeting from Nashville had all the hallmarks of what voters have come to dislike about these non-debates. The candidates often avoided directly answering questions, they broke the rules their campaigns had agreed to, and they speechified rather than engage in a serious discussion of the issues.

And yet, for one moment, Barack Obama showed why he is ahead in the polls. He did it by giving the single best explanation I’ve seen from anyone — politician, Treasury Secretary Henry Paulson, the talking heads — of why the rescue plan Congress passed last week is good for the American people. Remember, the conventional wisdom, certainly among angry opponents of the bill, is this is a Wall Street bailout and doesn’t do enough for Main Street.

When Oliver Clark asked the candidates what’s in the plan to help ordinary people, John McCain answered first, railing against “greed and excess in Washington and Wall Street,” blaming Obama’s “cronies” at Fannie Mae (FNM) and Freddie Mac (FRE), patting himself on the back for suggesting two years ago that the housing situation needed fixing, all before finally saying, “So this rescue package means that we will stabilize markets, we will shore up these institutions.” McCain then took another swipe at Obama.

Here, from the CNN transcript of the debate, is Obama’s complete response, up to the point where he too began congratulating himself for his foresight on the issue:

Well, Oliver, first, let me tell you what’s in the rescue package for you. Right now, the credit markets are frozen up and what that means, as a practical matter, is that small businesses and some large businesses just can’t get loans. If they can’t get a loan, that means that they can’t make payroll. If they can’t make payroll, then they may end up having to shut their doors and lay people off.  And if you imagine just one company trying to deal with that, now imagine a million companies all across the country.  So it could end up having an adverse effect on everybody, and that’s why we had to take action.

Nailed it. This is exactly what a leader should do: communicate to the people in clear, truthful terms about important topics. Obama succinctly explained exactly why it’s important to inject liquidity into the system — and why that’s more important now than directly helping individuals. (I wondered, by the way, if it was accurate to refer to “millions” of companies in the United States. In fact, according to the IRS, 5.7 million corporations filed business income tax returns in 2005, the last year the agency provided data. Obama not only knows the price of gas in Nashville, he also knows how many companies there are in America. And he found a way to simplify a complex topic without dumbing down his explanation.

McCain wasn’t terrible Tuesday night. But he did whiff a number of times. Why would he mention as a potential Treasury chief Warren Buffett, while also noting that WB supports Obama? As for citing Meg Whitman, the former CEO of eBay (EBAY), because “she knows how to create jobs,” did anyone tell McCain that the company Whitman headed until six months ago, getting badly outmaneuvered by Google (GOOG) and Amazon.com (AMZN) in the process, just announced it is letting go 1,000 employees? His most newsworthy comment, a proposal to spend $300 billion on bad mortgages, came off as a hastily conceived gimmick that if he’s serious ought to have been part of the Senate debate, not a populist grenade tossed on national television.

Then there was McCain’s bizarre off-the-cuff comment about how perhaps he needs hair transplants in the context of, if you can follow this, the types of rich folks whose health insurance policies are so good (even hair plugs are covered!) that they wouldn’t benefit from his tax-credit plan.

Obama wasn’t perfect. He gave a Clintonian answer when asked if he’d defend Israel from an attack by Iran when a simple “yes” would have sent a more powerful message to Jewish voters. But then brevity and concision isn’t a strong point of either candidate.

On balance, Obama more frequently respected the undecided voters in the hall by answering their questions. He’d ask Americans to sacrifice by expanding the Peace Corps; he wouldn’t necessarily take up Social Security reform in the first two years of his administration because there are more pressing matters. McCain, meanwhile, wants a commission to solve the Medicare problem, referred to his “hero,” Ronald Reagan, before referring to “my hero, Teddy Roosevelt,” and more than once talked down to voters, suggesting that they’d probably never heard of Fannie and Freddie before a few months ago.

The political pundits all said McCain needed to deliver a knockout punch to get back in this race. Looks more like he swung and missed.

This past February an excitable Belgian software executive named Bart Decrem and a quiet Australian ex-McKinsey consultant named Andrew Lacy had an epiphany. A few months earlier, in November, Steve Jobs had said Apple (AAPL) eventually would allow software developers to write programs for the company’s elegant iPhone. Jobs didn’t say when, and he didn’t share details of how Apple would work with outsiders. But it was an exciting prospect because cell-phone makers don’t typically allow anybody but their phone-company customers to place software on phones.

By February Decrem and Lacy realized that independent hackers already were finding ways to break into the iPhone and insert their own applications. The duo each had been passing time as entrepreneurs in residence at Silicon Valley venture firms, Decrem at Doll Capital and Lacy at Foundation Capital. Together with a third co-founder, noted Mac developer Mike Lee, they decided to start a company that would position itself for the day Apple opened its doors.

That day turned out to be July 10, when Apple debuted its App Store with much fanfare. The company that Decrem and Lacy founded, Tapulous, already is one of the most popular providers of free applications for the iPhone. Jobs told the Wall Street Journal last week that Apple alone would see an additional $360 million in annual revenue as a result of the App Store, if current sales trends persist. Apple keeps about 30% of the revenues its developers collect for their applications. (Not everyone is so enamored with Apple’s endeavor.)

It has become cliche to note that Apple is revolutionizing the mobile phone business.  Tapulous illustrates why. “This is about a cell phone finally becoming a computer that is always on and always knows where you are,” says Lacy. And because that computer has a gorgeous screen and simple Web browsing, it unleashes endless opportunities for creative entrepreneurs.

Though Tapulous, like most App Store developers, so far isn’t generating a cent, its fast rise is a good illustration of where that money will come from — for startups and for Apple. Tapulous has released two free applications, a game called Tap Tap Revenge, modeled after a popular arcade dance game, and Twinkle, an application that lets iPhone users send messasges over Twitter or Tapulous’s own system. In about a month, the game has attracted 1.2 million downloads, while Twinkle has 100,000 users. Tap Tap Revenge started with 20 songs from independent artists that users play for free. App Store rules prohibit Tapulous from linking its game with a user’s iTunes music library. But the startup plans a program to allow music labels to submit their songs directly to Tapulous.

Boasts Decrem: “That means we are a whole new distribution channel for music.” Not surprisingly, Tapulous plans to start inserting ads into its games. With more than a million users and growing — and only eight employees — it’s easy to see how such a company could generate profits relatively quickly. (The company also plans to offer a premium version of Tap Tap Revenge in September for $10.)

Expect Tapulous to make a mainstream splash. It has raised only $1.8 million, a pittance in Silicon Valley, but its roster of investors is impressive: Software veteran Katrina Garnett, early Google investors Andy Bechtolsheim and Rajeev Motwani, as well as Salesforce.com (CRM) CEO Marc Benioff and Khosla Ventures, whose David Weiden has a hot hand with small consumer-technology startups.

The company has promised two additional applications by the end of summer. One will be FriendBook, a program that lets people exchange business cards by shaking their iPhones at each other. The other is Collage, a way to share photos with friends as well as strangers with nearby iPhones. (Sexy flirting and creepy stalking seem inevitable.)

The Tapulous founders are careful to say they’re hopeful their programs will work with phones that run on other systems, including Google’s (GOOG) Android, Research in Motion’s (RIMM) Blackberry and Symbian, which Nokia (NOK) recently purchased. (RIM is sponsoring an investment fund to back companies like Tapulous, which mimics a similar effort by the Valley’s Kleiner Perkins.)

For now, the game belongs to Apple — and its legion of hungry software developers trying to make a buck off its beautiful inventions.

Three great articles in the current issue of Fortune Magazine will do a whole lot to illuminate the muddy subject of the enveloping credit crunch: our stories on gloomy banking analyst Meredith Whitney, a down-and-out bank in Arizona, and the rise and fall of Jimmy Cayne, former CEO of Bear Stearns. Read them all, and while the entire credit crunch won’t be crystal clear, you’ll suddenly feel like you’re beginning to get your arms around the difficult topics. Here are three bits in each feature that qualify as ah-ha moments:

* Toward the end of Jon Birger’s profile of Whitney, made famous for calling out woes at Citigroup (C) long before her competitors, he summarizes her two remaining concerns about the banking sector:

One is a new accounting rule known as FAS 141R. Given the depth of the crisis, Whitney expects to see bank regulators arranging shotgun marriages between well-capitalized institutions and foundering ones. Problem is, any such deals would have to happen before FAS 141R takes effect in December. The new rule, she says, “will make it almost impossible to do bank mergers.” The rule demands that an acquirer not only immediately mark to market the portfolio of the company being bought – and remember, bids for mortgage assets are now few and far between – but also mark to market its own portfolio as well. “Nobody’s going to want to do that,” Whitney says.

Another regulatory change that may wreak havoc: Starting next year, the Office of Thrift Supervision will bar credit card issuers from using outside credit information to reset interest rates. For instance, Wells Fargo (WFC) couldn’t increase the rate on your Visa just because you were late on an electric bill. While Whitney thinks the OTS proposal is well intentioned, she’s convinced that it will force banks to reduce the amount of credit they extend to consumers, dimming a business that has been a rare bright spot. With their credit lines trimmed, consumers will cut back even more on spending, deepening the recession. “When this takes effect,” she says, “it’s basically going to amount to a pay cut for the average American consumer.”

The short versions: 1) Requiring banks to be honest about their own valuations will hinder takeovers. 2) Inhibiting banks’ ability to penalize poor credit risks will have the intended or unintended consequence of constricting lending.

* In his profile of Arizona’s insta-financial institution, Towne Bank, David Whitford explains something I’d never understood before: how and why banks pay above-market rates on savings accounts. (Wachovia (WB) has been advertising some killer rates in my local paper.) The reason they do it is to quickly get deposits they can then lend to borrowers. The explanation of the process informs the current debacle:

Traditionally, the way little banks have competed against big banks for our savings dollars is by giving away toasters and sponsoring the Little League team.

But there’s a new way. It costs a lot less upfront than opening new branches or expanding your network of ATMs, and it’s faster. You do it with so-called brokered deposits, gathered through wholesale channels – brokers, mutual fund companies, and specialists who run ads in the business pages of local newspapers advertising the highest rates in the country. And while you’ll have to pay more interest to get those deposits and will end up with a lot of fickle customers whose only loyalty is to the best rate, you’ll get your money and can make your loans. It’s a tradeoff many banks have been willing to make.

Think about that — and read this article — before biting on one of these too-good-to-be-true offers.

* Lastly, and this one is the most complex topic, Bill Cohan, in his Jimmy Cayne profile, explains how the so-called repo market works with a great analogy to the inventory of a department store:

Regardless of whether hedge funds and short-sellers exploited the firm’s weakness, it was Cayne and his colleagues who made the firm financially vulnerable. They sealed the firm’s fate by choosing to finance the vast majority of the firm’s daily needs – about $50 billion a day – in the overnight repurchase agreement (or “repo”) market, using some 71% of its mortgage book as the collateral. (By contrast, Goldman Sachs (GS) finances less than 10% of its mortgage book in the overnight market, according to [Goldman Sachs co-president Gary] Cohn.)

Secured repos are crucial for investment banks, which borrow and lend billions to fund their daily business. Think of it this way: Wall Street firms have an inventory of hundreds of billions of dollars of securities that have been built up over the years (in the case of Bear, it was about $350 billion of assets). Like Macy’s (M), the firms try to move this inventory as rapidly as possible, hoping to sell it for more than they paid. In the meantime, like Macy’s, they use those assets as collateral to obtain financing to run their business. While Macy’s uses its inventory and receivables to secure a revolving line of credit with a maturity of around four years, Bear and other Wall Street firms finance part of their inventories in the repo market. They sell their securities to investors at one price and agree to buy them back the next day for a slightly higher price. The difference is the investors’ compensation for providing the financing. It is called “overnight repo” and for years it worked mostly without incident.

Macy’s creditors had the ability to decide every night whether to finance its inventory, they could pull the plug on the company – especially if they felt Macy’s had loaded the stockroom with questionable merchandise. Macy’s would never do such a crazy thing, but this is exactly how Wall Street operates. Bear’s reliance on overnight repo effectively gave the overnight lenders – such as Fidelity and Federated Investors – a vote on the firm’s viability every night. And during that fateful week in mid-March, those overnight lenders voted a collective no. The result? Bear Stearns did not have enough cash on hand to meet customers’ demands during the run on the bank.

This is one of the most lucid explanations of why the short-seller-conspiracy-to-break-Bear Stearns theories is nonsense.

Padmasree Warrior, the chief technology officer of Cisco (CSCO), is an avid user of Twitter. I had asked her by e-mail to tell me why she likes it and she sent me the following. I’ve got some thoughts about what she writes here, but rather than prejudice readers, I’ll ask for your opinions first. Please use the comment box on this blog (which allows for far more than 140 characters) or feel free to reply to me @adamlashinsky on Twitter.

On Twitter

How to tweet and not shriek!

I started to Twitter around early June after resisting for a long time! As it turned out, “resistance was futile.”  I don’t know yet if I will become a long term user or if the novelty will fade after a few months.

So far, I like it because it is quick, easy to use and allows multiple input modalities (web, mobile web, SMS).

It is always fun to let fly a few words every now and then about what you are doing, there is no denying that. But if it happens every few seconds and from hundreds you are following, the tweets amplify to screams and shrieks – a time waster.

What I use Twitter most for is to share “What I am thinking” rather than “What I am doing.” I am less interested in informing my virtual community about lunch every day. But, I am very interested in hearing feedback about my thoughts on various techno-social topics; like the future firm or internet transformation. It is intellectually stimulating to think out aloud virtually and hear the thoughts of others.

I ponder a lot about the Future of Innovation. In the next decade innovation cycles will compress dramatically driven by the web and the mobile. We will move from a serial, long, inadequate “brainstorming” process to an instantaneous, simultaneous, enriching approach. I coined the term “Brainforming” to describe this new phenomenon.

Brainforming is characterized by the fact that ideas get stronger when shared. If we have the ability to select as we collect ideas, then solutions are formulated concurrent with ideation. Twitter can be a powerful tool to enable this! How can this aspect of Twitter be used more effectively for Enterprise and Consumer applications? This is something I would like the Twitter team and the user community to think about.

This may not be the intended use of Twitter. However, it is often the inadvertent application of an innovation that has the most profound impact on productivity and society.

On one of my visits to Twitter’s hip South of Market offices in San Francisco I got into a conversation about blogging and Twittering with one of the founders of both trends, Evan Williams. He founded Blogger, which he sold to Google (GOOG), and owned the company from which Twitter hatched a couple years ago. He told me he’d grown weary of discussing and defending blogging, which I can understand. The whole journalist-versus-blogger debate is getting old. He also told me Twitter is going to be “really big.” Will it?

I’ve spent a couple months now in the Twittersphere, culminating with the article I wrote in the current issue of Fortune. I’m not typically an early adopter on this sort of thing, and in fact I didn’t really get interested in Twitter until Michael Arrington explained to me how he uses it to promote TechCrunch. Like a lot of people, I’d heard about Twitter but didn’t really have a sense of why in the world I’d want to use it.

Now that I’ve used it for a bit, I’m still not sure. No doubt it’s fun. I still think the people who use it to say what they had for breakfast or what they’re feeling at the moment are almost completely wasting their time and mine. (In my article, I teased Padmasree Warrior, the CTO of Cisco (CSCO). She can take the teasing, but check out her tweets for yourself. I’m also hearing repeatedly about how other services, like FriendFeed, are making Twitter obsolete. For example, startup Tapulous, which is building applications for Apple’s (AAPL) iPhone, has a free program called Twinkle that works on Twitter but also without Twitter. Given Twitter’s poor record at keeping its service running, it’s ominous that a new service could accomplish the same thing without using Twitter itself.

Still, when I tell the uninitiated about Twitter, I’m typically met with hostility along the lines of, ‘What’s the point?’ My biggest takeaway: Being judgmental is a waste of time. If the kids want to use it, and they seem to want to, isn’t it foolish to judge?

If Twitter has a future, what I think will be key to its success is the serendipity of finding people with shared interests. MySpace and Facebook are interesting self-publishing platforms. But we all know we can’t really keep track of hundreds of friends. With Twitter, the bar is lower. It’s a network of affinity groups, and the groupings change instantaneously with little time or energy invested. This is why a New York Times reporter used Twitter to find people who were interested in viewing the Olympics (see David Carr’s column that explains this) one day but might use it another time to find people who like a certain rock band. What’s exciting about Twitter, and other sites like it, is that people find uses even its designers didn’t anticipate. My buddy Jim Ledbetter’s new business-news site is using Twitter simply to note observations each morning from The Wall Street Journal. Paul Kedrosky, the venture-capital analyst, cleverly uses his tweets to draw people into his blog.

But will Twitter make it? Its founders insist they have ideas for making money, and I suggest a few in the article. Silicon Valley cynics think Twitter will make a nice feature for a Google or a Yahoo (YHOO). Twitter CEO Jack Dorsey told me something that impressed me. He said he admires Google’s pacing (his word choice) and that he hopes Twitter can emulate it. Pacing is an important concept in storytelling and, presumably, in company building as well. Now that could be an excuse for why it’s taking Twitter so long to build a reliable service.  Or perhaps it’s a description of what the often ugly process of starting something new looks like. I’ll keep following this. Follow me (that’s Twitter talk, FYI), here.

Fortune’s Brainstorm Tech wrapped three weeks ago, and I promised to share my observations, which somehow got stuck in my notebook. My first report, on bloggers, making money on the Net, and poor VCs, ran here. With apologies, here’s the rest:

Dinner with Jeff. A few years ago I attended a Microsoft (MSFT) annual dinner at the Consumer Electronics Show in Las Vegas and to my great surprise found myself seated next to Bill Gates, who sipped wine, talked politics and held forth in fascinating detail on what scientific breakthroughs it would take to stop the spread of AIDS in Africa.

In Half Moon Bay, late last month, the seating gods placed me next to another nerdy, iconic billionaire-entrepreneur-executive from Seattle – Jeff Bezos, of Amazon.com (AMZN). At the risk of gushing, my dinner with Bezos was one of the highlights of the conference. (And I was competing for Bezos’ attention with Time Inc. uber-executive John Squires, which made the bon mots Bezos was able to throw my way all the more special.

I’d never actually talked with Bezos before, and I frankly didn’t know what to expect. Given how famous he is, he’s actually somewhat elusive with the media. Yet here he was, jawboning about fatherhood, consumer technology (how he and his wife use and sample it differently) and management. He was completely relaxed – perhaps because he knew in two days Amazon would release solid financial results. (He also hung out for quite a bit of the conference, attending sessions that had nothing to do with him or Amazon. We love that.)

What stuck with me from our conversation (over more than a few glasses of wine and as I was preparing for my blogger smackdown), was his answer when I asked if back when Amazon was a media punching bag if he followed the criticism and if it bothered him. His reply: Yes and no. Bezos said he absolutely followed the Amazon bashing – and still does – because it’s important that he know what employees are hearing so he can answer the criticism to them at the company’s three annual employee get-togethers. He insists the carping doesn’t get to him – it’s essential that he as a CEO knows what’s being said. Makes sense to me.

Music men. Chris DeWolfe and Bobby Kotick make for an interesting duo. DeWolfe is tall and thin; Kotick is less tall and less thin. DeWolfe is a hip club rat and natty dresser who is up on the latest bands. Kotick praises the “sedentary lifestyle” of video games, might as well be dressed from head to toe by Old Navy and professes to prefer fine art to popular music.

For all the differences, the two are fast friends and together preside over a couple of the more important and unlikely forces in the music industry today, MySpace (a division of News Corp. (NWS) and Activision Blizzard (ATVI). DeWolfe wanted to chat about MySpace’s upcoming launch of MySpace Music, a joint venture with most of the major record labels. Its main thrust is to make legit the current practices of MySpace members, who love to plaster music they don’t own on their MySpace pages.

Kotick took the opportunity to talk up how Guitar Hero – Activision’s blockbuster video game – could become a threat to Apple’s (AAPL) iTunes Music Store. He first made that comment a few weeks ago when the merger with Vivendi’s Blizzard closed, and the iTunes killer since has taken on a life of its own. I got the impression Kotick isn’t particularly serious about pursuing a go-for-the-jugular music-sales application. At the same time, he’s happy to have people continue to speculate about it as it clearly pleases and excites his partners at Universal Music, who would love to see a healthy competitor to iTunes.

This is and that. I’ve mentioned that what makes our conference great is its eclectic mix of personalities. So here are some random observations of who else I saw and met at Brainstorm. Internet legend Vint Cerf, now of Google, hung out the entire conference, resplendent in a three-piece suit … I found out Sean Maloney, Intel’s top chip salesman and marketer, is a voracious reader of history. China is high on his list right now … two scions of the PR world were in attendance, Richard Edelman and Steven Rubenstein, whose dads both founded big-foot agencies.

I didn’t ask, but now I’d like to know, do you guys know each other?! … Neil Young met recently with a member of the Ford family to talk cars … Daniel Wallach heads one of the more interesting “green” ventures I’ve heard of, Greensburg GreenTown, which is trying to re-build an entire Kansas town in a environmentally positive way … VJ Joshi, a big shot at Hewlett-Packard (HPQ)  and a director at Yahoo (YHOO), doesn’t want to talk about the latter. Period … David Kirkpatrick is one of the great conference impresarios of all time!

We came. We saw. We Brainstormed.

Fortune Magazine held its annual Brainstorm Tech conference last week in Half Moon Bay, Calif., over the hill from the heart of Silicon Valley and just down the seaside road from San Francisco. As usually happens at Fortune events, we put together a wonderfully eclectic mix of heavy hitters from industry, big thinkers on issues most of us didn’t know existed, and the occasional oddball that makes the drive or flight worthwhile. It obviously has taken me more than a week to find time to jot down my impressions. Here are some highlights:

Bloggeriffic. I suppose the most buzzed-about event I participated in was a panel we called the “blogger showdown.” It ended up being more of a blogger smackdown, WWF-style. Despite my best intentions of getting Kara Swisher of AllthingsD.com, Giga Omni Media’s Om Malik and Robert Scoble, of  Scobleizer.com to talk about the industries they cover, all they and the audience really wanted to discuss was the state of the blogosphere. Fortune’s Yi-Wyn Yen did a write-up of the event that the media site Romenesko featured, causing old journalism friends of mine to come out of the woodwork to say hello. As an old-media guy (who writes a blog, appears on TV and radio, and Twitters), I’ve been coming around to the opinion that bloggers are just journalists and that the oft-discussed distinctions aren’t meaningful. Let’s just say I’m in the minority. Old-school readers can’t stand these folks for their perceived lack of standards, and the new crowd (my panelists were no younger than I am) wants nothing to do with fuddy-duddy readers. I’m willing to make the same prediction about blogging that I made 10 years ago about “Internet” companies: In 10 years there won’t be an distinction. Blogging will be part of the multi-media spectrum.

There was an interesting off-subject (or on-subject) moment during our Q&A. Kevin Kelly of Wired, responding to an extended conversation we’d been having about Yahoo (YHOO), asked, “Who cares?” (I had earlier asked if there was anyone in the room who still worked for Yahoo, noting the number of ex-Yahooligans in attendance. No one raised their hands, but there were in fact several current Yahoo executives there.) Swisher gave an appropriately spirited defense of our fascination with Yahoo, namely that it’s a giant, influential, and valuable media property, warts and all. That ought to be on the minds of folks paying attention to Yahoo’s annual meeting Friday in San Jose.

Making money on the Net. I hosted a breakfast panel on this hoary subject. The headliners were Rob Glaser of Real Networks (RNWK), which sells about $100 million a year in ads and sponsorships; Neil Ashe, CEO of CNET, recently acquired by CBS (CBS), and who will have to prove that there’s a reason to marry a slow-growth old media company with a slow-growth new media company; Greg Waldorf of eHarmony.com, the dating service backed by Sequoia Capital that’s still private after all these years; and Mike Volpi, the ex-Cisco (CSCO) exec who runs Joost, which has surprised the media world by lagging its competitor Hulu.com in product development. Everyone explained how they’re “monetizing,” but just before we ran out of time we started in on a fresh topic, the failure of the Web industry to make good on its promise of delivering really precise ads to users who want to see them. “It’s really a failure of targeted advertising,” said Brad Garlinghouse, the departing Yahoo executive of peanut-butter-memo fame. Added Bill Gross, arguably the man who invented search advertising: “AdSense is junk.” To deconstruct his conclusion, Gross — who founded GoTo.com, which became Overture and then sold to Yahoo, but not before Google (GOOG) appropriated its best ideas in AdWords and later AdSense – is saying that even mighty Google doesn’t deliver the type of ad quality it professes. Let’s get the band back together and keep on this one!

VCs out of luck? A great group of venture capitalists agreed to share a stage with me for a panel we called “Investing in a world without exits.” The conceit was that with the IPO market shriveled and Microsoft, Yahoo, Google and eBay losing the appetite for acquisitions, the poor VCs won’t be able to sell their portfolio companies, which makes it really tough to buy Gulfstream jets, country-club memberships and vacation homes in Italy. The VCs on my panel, of course, are different. They’re going to find exits. Trust them.