Wall Street is currently in a bubble of panic. The Valley is currently in a bubble of denial. Neither zone approaches reality. Members of the National Bureau of Economic Research — the only official arbiter of such matters — can't even agree if we're in a recession yet. "It's really hard to say if we're in a recession, because different indicators point in different directions," said Jeffrey Frankel, a Harvard professor and a member of the NBER's recession-calling commitee.

That technical measure of recession ignores the reality on the ground: Home prices continue to slump, gas prices are pinching consumers' pocketbook, and advertisers are aggressively cutting back budgets, even online. Layoffs are grabbing headlines.

But does this really affect the Web startups which so enchant the blogosphere's imagination? Schadenfreude demands that these tiny companies shutter their doors — or if they don't have the decency to close up shop, they should act suitably chastened by the cold economic winds blowing. There's a lot of contradictory advice being handed out: Rely on angel investors! Don't rely on angel investors! My advice: Don't rely on journalists and bloggers for advice on how to run your business.

One might think Valleywag, which eagerly chronicles the mishaps of misconceived startups, would cheer on the notion of a lot of startups starving to death because of an economic downturn. Far from it! Better that they choke on their own vomit — that excess and lack of self-discipline kill them, rather than factors outside their control.

Serious entrepreneurs should be tightly controlling their spending. But that is as true now as it was a year ago, and a decade ago. Retaining pricey PR firms, throwing lavish parties, hiring executives from Fortune 500 companies at mid-six-figure salaries — that can wait until the company turns a profit. If your startup is dependent on a bubbly economic cycle, then it's not being run like a startup.

By all means, those who were never meant to be entrepreneurs in the first place, who lack any real ideas of their own, or any interest in making money rather than spending someone else's, should take this occasion to make a graceful exit from the scene. Six months ago, closing your startup would have seemed cowardly if not insane; now, everyone will nod at your wisdom.

That brings me to the opportunists — the likes of Marc Andreessen, who has been preaching the notion of a coming "nuclear winter" for some time, and Jason Calacanis, who recently wrote about a looming "startup depression."

Were I more impressed with their current startups, I'd nod alongside. But Andreessen's Ning is an unimpressive social-network builder; Mahalo, a gussied-up replica of Yahoo's 1994-era Web directory. Frustratingly for some observers, they have raised enough money that neither company will run out of funds for at least a year. (No one sincerely believes Calacanis when he says he has enough money to run the company for four years, do they?) If their flimsy business models remain unchallenged, their survival is all the more likely. So when Andreessen and Calacanis talk doom and gloom, what I'm really hearing is: "Please don't raise money for a better idea than mine — I can't take the competition."

What history tells us, actually, is that the best companies are started in times like this. The last wave of truly innovative Web 2.0 companies — Flickr, Del.icio.us, Last.fm, Facebook — started at a time when no one particularly believed in their potential.

Many people would benefit from a climate of fear: Venture capitalists, who might get larger pieces of startups; employers, who might hire talent more cheaply; and corporate dealmakers, like Jeremy Philips of News Corp., who might acquire companies less expensively.

But the biggest reason to ignore Philips' fearmongering, in particular? He's not taking his own advice. Rumor has it that, instead of food and guns, he is acquiring a piece of Manhattan real estate. And from what we hear, it is rather too glossy a place to serve as a warehouse for rations and ammo.

(Photo by Gawker Media)

We're told Dudeck leaked Arrington not only the MySpace Music screenshots, but also tipped him to a story about MySpace friend-in-chief Tom Anderson's brush with the FBI as a hacker in the 1980s. The article served to burnish Anderson's rather questionable geek credentials.

MySpace has helped Arrington's business in other ways besides feeding him stories. The News Corp.-owned social network was a major sponsor of the recent TechCrunch50 conference.

Arrington has no issue bragging privately about his relationship with Dudeck. And Dudeck, our source says, has "no issues to sleeping with key influencers." Before Arrington, we hear, the rumor was Dudeck dated MySpace CEO Chris DeWolfe.

But don't believe us — let's go to the tape. Check out this clip of DeWolfe and Dudeck together at the Sundance Film Festival earlier this year, caught by Kara Swisher for AllThingsD. The way Dudeck leans in to DeWolfe to stay warm tells you more than any of our anonymous sources.

Kara's quippy response — "You don't have to love me" — reminds me of an anecdote my boss once related about Dudeck. The flirtatious MySpace flack accosted him at a conference last year and said, "We really need to work on our relationship." Sorry, Dani — Owen doesn't swing that way.

Of course, it's highly-compressed digital audio, and therefore pretty crappy. But I have to admit, the offerings go well beyond the pop selected for the Jonas Brothers' playlist — while I'm sure the cashiers at Amoeba Records might still sneer at the selection's depth, my searches for everything from Os Mutantes to Gas Huffer, Blind Willie McTell to Mongo Santamaria came up with multiple tracks to choose from. Eventually. The site is currently running incredibly slow, which may be a good sign of interest or a critical fumble of the launch. Users frustrated in the process of creating playlists might just go back to Last.fm, Imeem, iTunes or any of a number of other places to preview and purchase tracks.

The New York Times reports that between shots of hard liquor at the office yesterday, one Lehman employee shouted: “Are they going to take my BlackBerry? Come on, come get it.” Oh, they will. Research in Motion's BlackBerry sales were already disappointing in August. With Lehman expected to lay off most of its 29,000 Lehman employees, Merill Lynch and Bank of America expected to cut some 20,000, and plenty of Bear Stearns bankers still unemployed, September could be worse. Their ex-employers may not repossess the hardware, but RIM makes its steadiest profits from the recurring monthly service fees paid by businesses to push corporate email to the devices.

New York's most successful tech company is financial information provider Bloomberg, which somehow manages to charge companies thousands of dollars a year per subscription for access to the terminals that every Wall Street trader has on his or her desk. But with Lehman cutting 29,000 and Bank of America cutting another 20,000, Bloomberg's already low-volume business just got smaller at a time when it is facing redoubled competition from Thomson Reuters.

The benefit of a merger between the likes of Bank of America and Merrill Lynch is that the new company can combine their infrastructures and cut redundant costs. Unfortunately for IP telephony provider Cisco, it's one of those redundant costs. After flirting with Avaya for a couple of years, Merrill Lynch returned as a Cisco client in 2005. Last May, Cisco announced it would deploy 100,000 phones to Bank of America. When clients combine, vendors lose.

On February 27, 2007, Salesforce.com announced its largest deal ever, signing Merrill Lynch as a client and adding 25,000 new subscribers. How will Salesforce.com fare now Merrill and those 25,000 accounts are moving to Bank of America? At worst, Bank of America will insist Merill's brokers and their assistants use the Soffront CRM software the bank signed up for in March. At best, Salesforce.com will lose several thousand accounts as the new company seeks to reduce reduncancies and lays off as many as 20,000.

Investment bank Marlin and Associates helped Rupert Murdoch and News Corp's subsidiary Fox Interactive find MySpace, but otherwise it's been Lehman Brothers advisers bringing their favorite startup clients to the Murdoch empire. IGN Entertainment hired Lehman in the summer of 2005 and sold to Fox Interactive in the fall. Then in April 2007, photo-sharing site Photobucket hired the investment bank only to sell to Fox in May of the same year. Without Lehman Brothers, how will News Corp. grow on the Web?

... finally our digital efforts at Fox Interactive media are paying off with continued success of MySpace and the other FIM portfolio businesses.

If MySpace were actually successful in Murdoch's eyes, don't you think he'd have found some suitable piece of hyperbole? Inspect the letter for yourself:

Insight is a private equity firm that makes some late-stage venture-capital investments; Its average deal size is $35 million. Insight's partners invested $3 million in Photobucket in 2005, when it had 3 employees and no revenues; they collectively made an estimated $60 million when News Corp. bought the company last year.

A few weeks ago, someone pointed me to the Wikipedia page for Photobucket. An anonymous editor had added a paragraph to the entry accusing Photobucket's venture-capital backers of forming a "shell company" and "cherrypicking" the Photobucket investment to keep it out of the hands of Insight's own investors.

This much is true: Insight's partners formed a Delaware corporation called IVP/PB Investment LLC. The vehicle's name appears in Photobucket's Reg. D, a publicly available form filed with the Securities and Exchange Commission. If Insight's partners were trying to hide the deal, they could have done a much better job of it. The name alone suggests that IVP's partners had no concerns about people finding out about their investment.

Venture capitalists, in the classic way that the rich get richer, get pitched business deals all the time, of all sorts — real estate, small businesses, and, yes, startups. Sometimes they invest in companies on which their partners decide to pass, or of which its limited partners disapprove. Tim Draper of Draper Fisher Jurvetson is famous for doing this.

Photobucket was far too small, and far too young, for Insight to invest in, the VCs I've talked to agree. And why would they actively seek to piss off the college endowments and retirement funds on which they rely to raise future pools of cash?

There are questions about this deal — but they have more to do with how much time Horing, Murdock, and other Insight partners spent on Photobucket. Horing told the Wall Street Journal that his firm collectively spent 15 hours on Photobucket — including pitching the startup, unsuccessfully, to Benchmark Capital and Kleiner Perkins for follow-on investment rounds. 15 hours work for $60 million? I'm in the wrong business. But that hardly seems like enough to concern Insight's backers.

The deal has raised someone's ire, though. TechCrunch, PaidContent, the Journal, and, yes, Valleywag, were among the tipster's targets.

Yes, I should have written this one up sooner — but I was fascinated by the question of who wanted to get Insight, and why. I'm still at a loss. Insight has a low profile in the industry; as a late-stage investor, based in New York, it rarely dabbles in Silicon Valley's splashy younger startups. (Its sexiest investment is SkinnyCorp, the Chicago-based parent company of Threadless, a website which sells T-shirts.)

So: A spurned entrepreneur? A rival venture capitalist who lost a deal to Insight? It's useful to keep in mind that venture capitalists can make a lot of money on side deals — deals they heard about in the course of doing their day jobs. 'Twas ever thus. The person who thinks he ratted out Insight, though? He'd like you to believe that some venture capitalists are so venal and so foolish as to torpedo their entire careers over a tiny deal that happened to turn out well. Insight's opponent, whoever he is, underestimated the firm's intelligence — and some reporters' intelligence, too.

(Illustration by the Wall Street Journal)

DeWolfe and his MySpace cohort, Tom Anderson, renewed their contracts last fall with News Corp. last year for $15 million apiece, spread over two years. Paying that amount has, FIM executives believe, left nothing for them. "They're pissed," says our tipster.

Then again, do these puffed-up Fox executives deserve much more than they're getting? Pop quiz: Name a Fox Interactive property other than MySpace.

Instead of a deeper look at why the Google-MySpace partnership is failing, the Journal produced an explainer on MySpace's nearly-year old "hyptertargeting" ad product — the one that, according to the Journal, enables MySpace to double the amount it charges advertisers by categorizing users "into more than 1,000 'buckets,' including rodeo watchers, scrapbook enthusiasts and Dancing With the Stars viewers." Concert organizer Live Nation and shoemaker Adidas bought some inventory and walked away pleased, the story tells us.

One problem: like all behavioral targeting technology, "hypertargeting" faces increased scrutiny from Congressmen on a privacy kick. Another problem: targeted or no, many marketers don't believe MySpace users pay any attention to ads while they're cruising each other's profiles.

His strong opinions in the network neutrality debate may have something do with contributions from Internet service providers like Verizon and AT&T, which are respectively third and fifth on the list of largest contributors to his current re-election campaign, both ahead of oil industry services company Veco. He also counts News Corp. and Disney as top donors, and has championed broadcast flag provisions that would have required electronics manufacturers to bar users from recording digital audio or video flagged by rightsholders.

The investigation by the Department of Justice has been going on for four years, having raided the senator's remodeled home last year. But it's clear that corporations have known that Senator Stevens's vote has been for sale for some time now. The bad news alone might spell doom for the senator's re-election campaign, which would count as good news for open Internet advocates — the Democratic challenger, Anchorage mayor Mark Begich, is a strong supporter of network neutrality legislation.

Arrington desperately wants to sell, that's for sure. But a Fox Interactive-TechCrunch linkup makes little sense on the surface — Fox Interactive chief Peter Levinsohn is said to loathe Arrington, or at least dislike him. And yet Levinsohn, who has practically no control over Fox Interactive's largest business, MySpace, might conceivably be eager to buy a tech blog which gives him, if not traffic, some industry clout. After all, that's why Murdoch owns the reportedly unprofitable New York Post.

But the biggest problem with an Arrington deal is, well, Arrington. Recent rumors had AOL acquiring TechCrunch for $30 million. That deal didn't go forward, we're hearing, because AOL worried about Arrington's mental stability and doubted whether the brand would survive if the mercurial blogger left. As one prospective buyer put it: "We're worried about buying it and him leaving, and we're worried about buying it and him staying." Before being acquired by CBS, CNET, too, took a long look at TechCrunch, only to decide too much of its value was tied up in the volatile blogger.

Arrington is ready to check out. He was recently heard talking about plans to retire to Hawaii; other Valley sources say he's been spending a lot of time up in Tahoe. It would be the height of irony if Arrington's willingness to let go was what finally greased the wheels for a deal.

But without Arrington, is TechCrunch worth anything? That's the question. And that's why everyone's still talking. Arrington, a master of the deal-gossip game, could well be floating these rumors himself — both talk of a deal with News Corp., and signs of his pending departure — to get AOL to come back to the table. Will it get his company sold? Maybe to AOL, a company gullible enough to buy an also-ran social network like Bebo. But not to News Corp., home to the ultimate media spinner.

Yang himself touched on those personal feelings when he told the Wall Street Journal: "I think that the destabilizing by Microsoft has become more and more intentional. I am not happy about it."

Somebody clue Yang in. Everyone who isn't a Yahoo shareholder is happy to "intentionally" hurt Yahoo for their own personal gain, if that's what it takes. Everyone including Murdoch — who is probably hoping his comments might help keep Yahoo shares low enough for Yang to reconsider his pricey offer to tuck MySpace into Yahoo(Photo by AP/Pizac)

Relative to social network rival Facebook, MySpace's popularity is fading, and its not hard to see why. The site is a design nightmare — not just in a fussy aesthetic sense, but in lacking a basic ability to go from page to page and perform functions — and it has a history of antagonism toward third-party widgetmakers who could improve its features. More importantly, MySpace has disappointed financially. Sure, News Corp. chairman Rupert Murdoch and company successfully pawned off its search-ads business to Google for $900 million in 2006, butGoogle CEO Eric Schmidt always jumps at the chance to tell reporters exactly how awful that deal has been for Google so far.

• Former Fox Interactive boss Ross Levinsohn and AOL CEO Jon Miller, now partners at Velocity Interactive, seem to come as a pair. Levinsohn is best known for acquiring MySpace for Fox Interactive and quitting the company after it wouldn't buy Digg. But Levinsohn is also known for bullying entrepreneurs — once, so badly that renowned angel investor Ron Conway reportedly "flew off the handle" at him. In some quarters and in Jason Calacanis's heart, Miller gets credit turning around AOL. But like any exec, Miller has his detractors at AOL and they came out of the woodwork when he was fired last year. One described him as
  

  An executive over 4 years that put more incompetent people in high-places (e.g., McKinley) while firing (Govern) and letting reams of talented folks (e.g., Kotay, list-o-long) leave that were passionate and—at least—somewhat competent, and were actually trying to foster some core innovation and synergy.

• OpenTable’s CEO Jeff Jordan is on Yahoo shareholders and board members' wishlist, just like he was on Facebook founder Mark Zuckerberg's list to become COO of that company before it settled on Sheryl Sandberg. An eBay veteran, Jordan was thought to be in line for Meg Whitman's job until he took over as OpenTable's CEO in 2007. His reputation as a "product Nazi" led Valleywag to endorse him for Yahoo's top job way back in November 2006.
• Tim Armstrong heads up Google's ad sales force and the unit is perhaps respectably profitable enough for Yahoo shareholders and board members to include him on their list. We wonder, however, if the board knows about Armstrong's involvement with sketchy search engine spam company Associated Content.
• Why wouldn't Yahoo's board and shareholders want Microsoft’s Kevin Johnson for the company's top job? Ever since Microsoft CEO Steve Ballmer announced a bid to acquire the company on February 1, no one's given more thought to running Yahoo. Johnson's even written several memos on the topic — showing great ability to include exclamation marks after the company's name while still respecting the need for capital letters.

What struck me about Hansell's piece was the use of a file photo that features a wildly grinning and unbelievably baby-faced Adelson — with professionally trimmed hair, no less! Looks a little too much like a certain viral movie marketing campaign to be a coincidence. Is the gray lady secretly synergizing with News Corp. on the latest Dark Knight release and subtly Joker-izing Adelson?

While YouTube has hosted videos over ten minutes in the past, notably including feature film Four Eyed Monsters, in-house Google videos and Charles Trippy's longest YouTube video ever stunt, and early content partners have had the freedom to push the envelope from time to time. But now it's official, and it's certainly in the hopes of garnering better content, running more ads and pumping up "engagement" metrics like average time on site.

[W]e're all surprised to see you carrying Carl Icahn's water on this one instead of someone at the Journal.

One of Rupert Murdoch's plans for the Wall Street Journal after acquiring parent company Dow Jones from the Bancroft family was to turn it into a broader-interest daily with a rightward tilt — an ideological counter to the Times in the way that Murdoch's New York Post and the New York Daily News divide the tabloid market. The Times has responded by taking more of an interest in Wall Street. Nocera, for his part, specifically calls out the Bancroft family for handling the News Corp. bid as poorly as Yang handled Microsoft's offer. Kudos to Dan Lyons, writing as Fake Jerry Yang, for noting that while ostensibly Nocera's rant is about the Valley, there's more than a little Times versus Journal backbiting going on as well, and we can expect to see more of it.

If we're the shareholder, we're not calmed. MySpace is far more popular in the U.S. than Bebo. Despite that, ad partner Google still can't figure out how to make money off it. Why doesn't Bewkes just admit it? He had other things in mind when he bought Bebo. (Photo by AP/Peter Kramer)

A source tells us that the site's founder, who's never taken funding and brags on the Newgrounds "about page" that "we're still 100 percent independent and love what we do," is said to be happy collecting "millions" in revenue and is uninterested in a sale. According to Quantcast, Newgrounds sees about 1.5 million monthly uniques.

Blinkx's technology is good. (And really, when have you ever heard Valleywag praise someone's technology?) But Chandratillake has never been able to make Blinkx a destination site. Google already has YouTube, and CEO Eric Schmidt has put the heat on YouTube's management to start making money. Merely applying Google's text-search techniques hasn't cut it. Perhaps Blinkx's technology, which better matches video viewers' interests to ads, could prove YouTube's Holy Grail.

• MySpace users click around so much and create so many pageviews that ad inventory supply outweighs advertiser demand.
• It's hard to tell why a particular user is using MySpace, so targeting ads are difficult.
• FIM is having a hard time coming up with convincing metrics to sell advertisers on the value of a friend's recommendation.

We've heard Levinsohn likes to trade on his MySpace-to-News Corp. deal by "bullying around little startups, demanding special deals because he's a famous 'CEO'." Problem is, Levinsohn may have run Fox Interactive, the News Corp. company that purchased MySpace, but he never exactly wrested control of MySpace, the only Fox Interactive property that matters, away from Chris DeWolfe and Tom Anderson. Levinsohn's attitude is known to irk the Valley's influential, particularly angel investor Ron Conway.

Still, we applaud Microsoft's selection. Joining ComVentures, now renamed Velocity Interactive Group, at the expense of two partners last December, Levinsohn neatly proved his worth in a knife fight.

Seriously, Beboers, If you're going to start sucking up to your new overseers, you should brush up on your corporate culture clashes. The "overlords" line had its start on a Simpsons episode. The Simpsons is produced by an arm of News Corp. AOL is a unit of Time Warner, whose top executives despise News Corp. For maximum obsequiousness, try picking up lines from Friends instead. That TV series was produced by Warner Bros.