This is the second of what now appear to be three columns about how we as a people allow ourselves to be victimized, whether by unscrupulous computer hackers or unscrupulous computer bankers. This part is about the bankers — the guys whose bonuses were too big to be discontinued.  Part three will present a possible solution to this specific systems problem…

A year ago I wrote a sad little column about my friend Ralph and his difficulty getting his mortgage adjusted.  Ralph had lost his tech job, there was this federal program to help people in his position lower their mortgage payments, but for some reason it just wasn’t working. His lender kept losing the paperwork, forcing Ralph to reapply three times. Twelve months later Ralph is now working hard at a tech startup that can’t yet afford to pay him, he’s thankful his wife has a good business reselling children’s clothes, but their mortgage still hasn’t been modified, though Ralph keeps trying.

Here are the numbers so far, according to Ralph:

He has dealt with 11 different bank negotiators
He has applied for either 8 or 10 modifications (depends who you ask)
He has made 50 phone calls
He has sent 35 FedEx shipments
He has faxed the bank 300 pages
He scanned 70 pages to PDF and sent by e-mail
He initiated one Congressional inquiry

Understand here that Ralph isn’t an outlier.  He is not in foreclosure. He’s precisely in the intended sweet spot for this federal loan modification program — just the sort of customer who ought to easily qualify — and has qualified several times only to have the deal fall apart every time.

Recently Ralph’s modification request was again denied. “I was told my modification was closed,” Ralph explained, “because they were waiting on information from me per the FedEx letter I have attached dated July 21, 2011. Nowhere does the letter ask for more information. It asked me to call Tawanna Banks  but lists the wrong number for her. The letter was not even written on bank letterhead! I found the correct number 877-430-1431, extension 276004, called and left a few messages. She never called back.  I kept calling and eventually talked to a new person who verified my information over the phone. It took a long time, but everything was supposedly fine. Then they dropped me anyway.”

The loan servicer in this instance is Bank of America. In my previous column on this I blamed the problem on IT glitches, possibly at Freddie Mac, which guaranteed the loan.  A year later my view of the situation is different: I’d say Ralph is getting the runaround from BofA, which appears to have no real interest in helping him.

Is an organizations that asks for extensive paperwork then loses it as many as eight times simply incompetent or are they evil?  My money is on evil.

In the bank’s communication with Ralph they make the point over and over that “assistance isn’t guaranteed.”  Looking at the numbers above it might be more accurate to say “assistance is unlikely.” It is very hard to see this as negotiating in good faith.

Maybe the bank is just pretending — faking it in hopes that Ralph will eventually get the implied message and go away.  They don’t know Ralph.

Just lately Bank of America has been having a hard time of its own.  The bank’s stock is down and it has even been rumored to be at risk of going under. Then last week Warren Buffett came through with $5 billion in new capital from Berkshire Hathaway to shore-up BofA.  Too bad for Ralph, who would certainly be better off if the bank goes under, allowing some other organization to take over servicing his loan.

There are many lessons to be learned here, but what are they?  Don’t lose your job?  Don’t believe your government or your bank? Resistance is futile?

Then it came to me in a pair of blinding realizations.  First, Ralph is insane.  Second, we have all been looking at this mortgage finance problem absolutely backward.

There’s a quote I’ve seen attributed to Sigmund Freud, Mark Twain, and Benjamin Franklin that “the definition of insanity is doing the same thing over and over again expecting a different result.”  No matter who said it first (apparently it actually surfaced in a book from the group Alcoholics Anonymous) this clearly applies to Ralph.  The poor guy just keeps doing as he has been told and what happens?  He gets screwed over and over again.

So Ralph is crazy, but more than that we are all crazy, because here we sit rooting for him to get the damned mortgage modification when it is obvious BofA isn’t going to let it happen.

But why won’t they?

That’s when we come to the other side of this mortgage mess. Instead of concentrating on who is being hurt by it, let’s look at who is profiting.  And a lot of people are profiting. Financial bubbles eventually pop, that’s the rule. But this historic housing bubble from 2001-2007 we’re still recovering from hasn’t popped for everyone, at least not yet.

The first thing to notice is that most homeowners aren’t in Ralph’s position.  For all the mortgage distress out there only about 14 percent of U.S. homeowners are behind in their payments or in foreclosure.  While this is a huge number (something in the range of nine million mortgages) it still leaves 86 percent of U.S. mortgages intact and being repaid.  With interest rates at historic lows you’d guess that most of that 86 percent have recently refinanced to take advantage of lower payments.  No, they haven’t.

A quarter of those homeowners in good standing have no equity left in their homes at all and the rest have significantly less than they once did — often not enough to qualify for a new mortgage. So they just keep paying on the old one, which is at a significantly higher interest rate.  That’s why we saw a refinance flurry in 2008 that has since, for the most part, vanished.

Rates are down, sure, but qualifying rules are stricter and there are at least 30 million U.S. homeowners who are literally trapped in their old mortgages. A few walk away, but most don’t because they worry about ruining their credit. And this means that while new 30 year mortgage rates are in the 3-4 percent range, the average rate paid by these trapped homeowners on their old mortgages is twice that.  And since their loan initiation overhead was amortized years ago, their actual yield is even higher.

Are you making seven percent on your money?

What we have here is an astounding corruption of the mortgage market. This game is rigged, yet everyone in government from President Obama down pretends that it isn’t. And don’t blame just Obama: the Republicans might be even worse.

Over the last 30 years the average American home was refinanced every three to four years. That was the life expectancy of your 30-year loan in the mind of the guy at the bank who approved it, when, six years ago? But these underwater and zero-equity ghost mortgages have become essentially perpetual, since they can’t be refinanced and nobody will buy the houses.

This is all you need to know to understand the stalled U.S. housing market: it is stalled because a class of investors has found a way for their investments to not only live on after the housing bubble popped, they are actually making more — in some cases a lot more — than they were on that money when the loans were originated.  They are doing so well, in fact, that they can’t imagine a circumstance under which they would ever allow the ghost mortgages to go away, no matter the cost to the economy or the nation.

So the ghost loans aren’t going away. And the longer this unnatural situation lasts the more all the rest of us are being hurt.

Understand that we are talking about at least $2 trillion in ghost loans that really ought to have been refinanced but weren’t because of these structural issues and because the banks — who clearly know what’s happening — don’t have the guts to stand against their investors. But that’s nothing new.  And it’s not going to change until someone at the very top does something about it.

Next, what can be done to fix this mess at no financial cost to the nation…

Note — This is the first of two three very different columns about what turns out to be the same topic.

I was driving back to college in my red 1966 Oldsmobile Cutlass convertible when a pickup truck appeared before me on the two-lane road going perhaps 20 mph under the speed limit, which was to say 25 mph slower than me. I pulled into the opposing lane to pass him and the guy punched it, accelerating quickly to keep pace with me so I could neither pass him nor pull back into his lane without hitting him. My simple passing maneuver became a death race because now a third car was added to the mix, coming straight for me down the road. I tried to speed up to pass the truck but he stayed with me. I looked over and he was laughing, trapping me in the passing lane. So I stomped on the brakes and he did too! The other car was still approaching, slower now because he was also afraid. I came to a complete stop on the road and only then did the pickup resume speed, finally allowing me over. The guy was, as my Mom would say, an asshole. But if you think about it my behavior contributed to the peril. He had been lying in wait, but I had taken his bait.

What’s the admin ID and password on your home router? Leaving the factory they are all the same for each major ISP. You haven’t changed it, have you? If it’s a wired router some bad guy can start with a block of IP addresses and easily hack you. He probably has. If your router is wireless he can do it over the net or over the air. And we helped him by not changing our IDs and passwords (change both).  In this case the hacker is that guy in the pickup and — like me in the Olds — we’re fat, dumb, and happy.

In Palo Alto many years ago there was a $1 video rental shop on the corner of El Camino Real and Page Mill Road. It later became a florist and now is something completely different. But back in the 1980s when VHS tapes rented for $3-5 per night, $1 rentals were amazing and the shop was packed with customers who driving past on their way to Hewlett Packard, Varian, or Syntex when they stopped for a copy of Lethal Weapon. The deal seemed almost too good to be true. It was too good to be true. The shop owners were gathering credit card numbers and one weekend a few months into their video business they extracted more than $1 million from Mastercard and Visa before skipping town forever.  Those of us who rented $1 videos without question enabled their crime.

How many passwords do you have? According to data security researchers,  you probably have a four-digit PIN you use for accounts where four digits are required and you have an eight-digit password you’ve been using for everything else for at least a decade. If I set up a web site offering a deal too good to be true, like say free online video rentals (just to make my point brutally clear) free games, or free horoscopes, or maybe a free VoIP phone account or even a free IP proxy service to let you cheat and watch the BBC iPlayer, what password will you give for that account?

Why your ever-faithful eight-digit universal password, of course!

Nearly everybody does it, security researchers report, and nearly everybody is vulnerable as a result.

When Dick Feynman was cracking safes for fun at Los Alamos during the Manhattan Project, 30 years before winning his Nobel Prize, he found most of the military safes had their original factory-set combinations, which of course are all the same.

Now throw-in your pornstar name, which includes answers to typical security questions, and millions — maybe tens of millions — of networks, PCs, and financial accounts are suddenly wide open.

There are viruses and malware and botnets — always more botnets — and the fact that millions of our PCs are zombies comes down as much to our carelessness as to the evil intent of the people hacking our machines. They get away with it in large part because we let them — even help them — do it.

Next, how our habitual behavior has allowed the world economy to be screwed… and what can be done about it…

I was about to board an airplane Wednesday when Apple announced the resignation of Steve Jobs as CEO and his replacement by Tim Cook. With a couple hours to think on my flight to Charleston it became clear to me that this story is far from over and the long-term leadership of Apple has not yet been determined.

There were rumblings a month ago about Apple board members interviewing possible successors to Steve Jobs. There’s nothing surprising in that, given Jobs’ poor health and the fact that the primary function of any board is hiring and firing CEOs. But it evidently didn’t go down well with Steve, perhaps because he had his own succession plan or simply because it showed a crack in Apple’s armor against news leaks. The story was quickly shot down.

Then a week ago the publication date of Walter Isaacson’s authorized biography of Steve Jobs was changed from March 6, 2012 to November 21, 2011. This shocked me, because the last I read Isaacson was still writing his book, which was due with the publisher, Simon & Schuster, in September. Huge biographies aren’t finished early or rushed to completion.  Figuring the book will still be finished in September, that it will take a month to print and ship the books, this means that the publisher’s part of this process — the copy editing, designing, formatting, building indexes and so forth — is being reduced from a normal minimum of at least six months to less than six weeks. It makes business sense to do this, sure, but I don’t think that’s enough: some external force is pushing the deadline.

I suspect that force accelerating the publication may be Steve Jobs.

And now we have Jobs’ resignation. But he’s not going away, not signing-up for Apple COBRA benefits, just giving up to Cook his duties as CEO. Jobs will remain an Apple employee and chairman of the board.  That makes him what’s called an executive chairman — one who is on the job every day. And that job he’ll be doing every day is overseeing Tim Cook’s execution of the corporate strategy designed by Steve Jobs.

This looks to me like Cook continuing to function in his Chief Operating Officer role. Oh he’ll get a big raise and an even bigger bonus, but my sense is that next week the guy really in charge will still be Steve Jobs. And the Apple board, satisfied that the succession question has been answered and their own fiduciary asses are covered (I suspect this is a big part of it) can go back to sleep.

But it isn’t a long-term solution. Steve Jobs won’t be around forever and a true successor will have to be chosen eventually. For all his administrative skills, Cook can’t fill Jobs’ visionary shoes, so I’d look for another leadership change, maybe tied to the release of Isaacson’s book.

I say this based not only on my understanding of Steve and the way things work in Cupertino, but also based on my reading of Isaacson’s last book, a very good biography of Albert Einstein. That book is what attracted Jobs to Isaacson as his biographer. This was no chance encounter.  Steve doesn’t believe in them.

In his Einstein book Isaacson tried (and I think succeeded) to take us into the mind and ideas of the German physicist who changed the world. He’ll do the same with Jobs.  And in the case of Jobs, the understanding that’s missing is less his maturing as a technology visionary and more the vision, itself. Where is Apple going?  What’s the grand plan?

We know there is such a plan — there has to be, Apple’s moves have been too deliberate, if inscrutable, to be some executive random walk.  But nobody near the top has ever tried to explain where the company is going, preferring to be mysterious instead.  Bill Gates had Nathan Myhrvold write his book for him, but Steve is classier than Bill. I believe Walter Isaacson’s book will also function as Steve’s technology manifesto, part of his legacy.

Once we have the grand plan, then it may make more sense just who should lead that plan’s execution during what will clearly be Apple’s best quarter in its 34 year history.  Steve Jobs is setting-up this (and us) for another grand reveal… just one more thing.

Semi Pro

A rumor surfaced yesterday in Japan that Apple would by the end of the year introduce a radical new kind of Macintosh computer. That was it — new Mac, radical — yet dozens of sites ran with this non-information simply because Apple is a hot company and, who knows, it might be correct. In that same spirit, then, here’s my guess about what might be correct: I think Apple’s Macintosh Pro line of computers is dead.

Mac Pro’s are Apple’s big box PCs. They haven’t been refreshed since last summer and new models were expected this month with the new Minis, but for some reason the new Mac Pro’s failed to appear. Apple said nothing because, well, because Apple never says anything, instead relying on dopes like me to write non-stories like this one. But while the Mac pundits are generally still waiting for new Mac Pro’s to appear, I don’t think they are coming at all and will be replaced with a whole new approach toward high performance computing from Apple.  Maybe this is what the Japanese writers are picking up on.

Mac Pro’s were Apple’s most powerful computers, though the new Mac Mini I7 servers get pretty darned close, and that’s part of my point in making this prediction. Apple likes a simple product line and eliminating the Mac Pro’s, just as Apple last year dropped its xServe line, would certainly simplify things.

Dropping xServe, an Apple move that was wildly unpopular in some IT quarters, was I suspect some sort of Steve and Larry each bargaining with the Devil thing in which Apple steered even more clearly away from the enterprise in exchange for who knows what from Oracle/Sun. But I think dropping the Mac Pro, if it indeed happens, is a very different move intended to simplify the computer line while boosting the display line.

Mac Pro’s are dinosaurs in many respects. That big beautiful aluminum case with its clever air ducting is eight years old and enormous compared to most PCs. It exists primarily to allow users to pack their Macs with extra drives and third-party graphics cards for high-end gaming. But Apple is changing its whole approach to storage, presumably moving as much of it as possible to that big North Carolina data center.  Apple hates foreign cards (or indeed cards at all) installed in its machines. And then there’s those new 10 gigabit-per-second dual-channel Thunderbolt ports; where do they come in?

I expect Apple to move to a modular architecture where the building blocks for high performance computers are generally Mac Minis. Start with a new Mini or with a Thunderbolt iMac and expand both storage and processing by adding a stack of up to five more Thunderbolt-connected Minis. A maxed-out system would have six I7 processors with 24 cores, 24 gigabytes of DDR RAM (expandable to 96 GB!) and at least six terabytes of storage.  And at $6000, it would be half the price of an equivalently tricked-out Mac Pro.

Yeah, but what about the Graphics Processing Units (GPUs)?  What real gamer wants to be limited to the somewhat lame integrated Intel graphics found in the Mac Mini line?  That’s where the displays come in.

Apple’s Cinema Displays, while still lovely, have fallen way down the price-performance curve. They are too darned expensive for what you get. But Apple can hardly be a PC company without displays. They need to either (shudder) start to compete on price or more likely find us a new flavor of Kool-Aid, which I think we’ll see in upcoming Apple Thunderbolt displays.

There are only two Light Peak displays on the market right now.  I use the term Light Peak, which is what Thunderbolt is called in the non-Apple world, because while one display comes from Apple the other is from Sony and uses a different connector. I think that Sony display gives us a hint to Apple’s plan, because the Sony screen features an integrated GPU.   The new Apple Thunderbolt display may include a GPU, too, but nobody seems to know.

There are good reasons to put the GPU in the display. All those zillions of calculations, after all, are being performed specifically to drive the display. And putting the the GPU inside the screen allows the highest possible bandwidth connection between video memory and display pixels. In some ways putting the GPU in the screen may actually make the screen cheaper to build at such a high performance level.  Whether that is true or not, I am sure it is what Apple will tell us.

When Apple announces a 27-inch or 30-inch Retina Display, you can bet it will have an integrated GPU.

POW! Apple will be back in the business of selling $3000 displays and Hollywood, New York, and San Francisco will be back in the business of buying them. Mac Minis will become the Boeing 737 of performance computers. And Apple can at that point probably drive enough connections on its own to create a vibrant market for third-party Thunderbolt accessories.

Or I’m wrong.

Maybe the Japanese will know.

Hewlett Packard was different from other Silicon Valley companies and always a leader. By the time I met Bill Hewlett and Dave Packard in the late 1970s they were nearing retirement but still active and I knew them, working occasionally for both men and for their respective foundations. Hewlett was the good cop and Packard was the bad cop, but both men had figured out through a steady process of evolution over four decades how to build and run a fantastic company. Those days are over.  Though confirmed by this week’s HP decisions to change direction and ditch the PC business, let’s understand something: the HP I knew died many years ago.

The news of course is that HP plans to buy for $10 billion Autonomy, the UK business analytics company, while dropping the WebOS product line acquired only a year ago and eventually dumping the entire HP PC business.  What this is intended to accomplish is to move HP firmly into the enterprise market, away from consumers, while shifting the company’s center of gravity in the direction of Europe. It’s the end of HP in all but name.

I am not saying, however, that HP CEO Leo Apotheker’s plan is wrong. He is playing to his (if not HP’s) strengths and doing the best he can with the cards he has been dealt.  It will be a challenge, however, for HP to emerge from this transition a significantly stronger company.

The decline of HP began, I think, with the spinoff of Agilent Technologies in 1999. Lew Platt was running HP and he thought the company was too diversified and really needed to concentrate on computers, storage, and imaging. So everything else was spun-off into Agilent. And while this made sense at the time and even today, there were unintended consequences of that spinoff — the loss of HP’s corporate soul. You see Hewlett Packard was in 1999 an instrument company that made a hell of a lot of money from printers, not a printer company that also built instruments.  Hewlett and Packard were instrument guys: had they still been on the job in 1999 they would have gone with Agilent. If Packard was still alive in 1999 I doubt that the spinoff would even have happened.

Lew Platt blew it in my view.  And then of course he left the company in the hands of… Carly Fiorina?

I knew Lew Platt, too. When Platt left HP he ran the Kendall-Jackson wine business for a couple years and Jess Jackson, Lew’s new boss, was my neighbor at the time. It’s a small world. So I got to know Lew a little in his post-HP time and came to feel that the Agilent spinoff was Lew punting.

Let me explain. We’ve all heard how great it is that Google allows its employees to spend 10 percent of their time working on their own projects. Google didn’t invent that: HP did. And the way the process was instituted at HP was quite formal in that the 10 percent time was after lunch on Fridays. Imagine what it must have been like on Friday afternoons in Palo Alto with every engineer working on some wild-ass idea. And the other part of the system was that those engineers had access to what they called “lab stores” — anything needed to do the job, whether it was a microscope or a magnetron or a barrel of acetone could be taken without question on Friday afternoons from the HP warehouses. This enabled a flurry of innovation that produced some of HP’s greatest products including those printers.

But the Agilent spinoff unzipped HP, tearing one half of its creative culture from the other. Friday afternoon teams crossed product lines and many of those teams were decimated when the company was split along product lines.

So Carly Fiorina inherited a company with an identity crisis, which she rightly saw as a call to establish a new identity — an identity built around her, not around HP’s well established traditions. In this sense Carly and Leo, the present CEO, are remarkably similar.  Carly’s plan was to grow the company which she did through the acquisition of first Compaq Computer and then Electronic Data Systems. HP grew enormously, but it didn’t improve.

When it announced plans to buy Compaq, HP was a nicely profitable and growing firm.  Adding Compaq into their numbers HP became financially a mediocre company.  Their profit margins and earnings per share were hurt.  The return HP got from Compaq was not great.  I wonder if there even was an ROI?  Today the PC brands are worth a fraction of what they were a few years ago.  When HP sells or spins off their PC operations it is unlikely they will even break even on their investment.  Compaq was a costly mistake for HP that not even a ruthless hatchet man like Mark Hurd could turn around.

So dropping the PC business makes plenty of sense, but doing so won’t reverse enough for HP.

Who would want to buy the HP PC division?  I suspect the best financial course of action for HP is to spin off the company, saddling it with a big debt to HP in the process.

Some analysts will of course compare HP’s new course with that of IBM a decade ago when the IBM PC division was sold to Lenovo.  The IBM and Lenovo deal was good for both parties.  Lenovo got a good business at a good time.  It opened China to IBM.  IBM built a research center and a support center there.  Is there another Lenovo out there to buy HP’s PC group?  Can HP get the same value IBM did?  IBM’s timing was very good.  HP may be too late.

IBM’s services business makes money.  When HP bought EDS under Fiorina’s successor Mark Hurd that company was losing money. As good as the culture was at HP, the long past Ross Perot EDS culture was bad.  Combining the two companies was like mixing oil and water, or more correctly hydrazine and nitric acid.  Once again HP leadership ignored the importance of one corporate culture and forced change onto the company it could not understand or manage.

Software is a big part of IBM’s profits and it is growing rapidly.  IBM and Oracle have been on buying sprees, picking up one software firm after another.  HP has not.  Software is only three percent of HP’s business.  Are there any good buys out there for HP?  Again it could be a matter of timing.  HP is late getting started.  The best deals may already be gone.

Consistent with this trend, when HP decided to enter the phone and tablet markets it waited too long and acted without thinking enough.  Buying Palm was a quick solution for entering these new markets, where by then Apple and Google were the industry leaders.  Microsoft had stepped up their efforts to become a major player in the market.  With two major players and a third investing heavily to catch up, why would you bring a fourth (and very low market share) technology to market?

HP should have figured out — tablets, yes; phones, maybe; Android, absolutely.  But they didn’t. They overreacted again.  Instead of evolving and adapting to the market — instead of allowing Google to pay for much of their R&D — HP is going to throw away a $1.2 billion investment.

American firms have been laying-off their engineering staffs for years.  In today’s world of MBA-managed companies, R&D is perceived as not being a good use of money.  Apple is an exception and over the last several years they have been producing one great product after another.  HP worried about keeping up with Apple so Apotheker — like Lew Platt back in 1999 — decided to punt.  Apotheker decided to no longer compete with Cupertino. He said as much this week.

It’s highly symbolic, at least to me, that Apple’s new spaceship intergalactic HQ will be built atop what used to be one of HP’s most important labs.

But in the long run I think Apotheker’s new course won’t work, either. Squeezed between Apple and Oracle, HP may have no route back to greatness.

They’ve lost the way.

Driving Miss Sadie

Last week I announced that I’m planning my own Android phone and the next thing you know Google does the same thing!  Coincidence? I think not.  Our motivations are somewhat different, however, and their budget, at $12.5 billion, is marginally higher. I’ve had plenty of time to think about this as I drive the dogs across country to our next home in California and there’s quite a bit more to this Motorola deal than other pundits have been saying.

Yes, it has a lot to do with patents and that might well explain Google’s goofy bidding behavior during the recent Nortel patent auction. Maybe Google already knew it was going for Moto at that point. Certainly with these 17,000 patents plus the $1 billion worth of patents acquired from IBM, Google can go toe-to-toe with Apple or anyone else in an IP battle. Cross-licenses of certain mobile technologies would certainly appear to be in the future for many of these companies.

And cross-licenses represent another important aspect of MotoGoogle that generally hasn’t been noticed — Motorola’s Java license. Oracle, the new owner of Java and all the rest of Sun Microsystem’s old IP, has been beating-up on Google in court, claiming the search giant has stolen Java technology. Not anymore. If this Motorola Mobility deal goes through (and I think it will) then Oracle loses grounds for its lawsuit, which is part of why Google is even doing the deal.

Okay, so Google is going into the phone business. Of course they are going to run the company as a separate business since that’s about the only way to spin the inevitable negative impact the deal will have on Google’s gross margins. Only Apple makes big margins on hardware and while MotoGoogle would like to be Apple, it isn’t.

What does this mean for Google Voice? I haven’t heard this question asked yet. If Google wants to sell phones they’ll mainly do so through the mobile carriers and every one of those carriers is threatened by Google Voice’s potential to disintermediate them and steal their revenue. I’m sure the carriers will ask for Google Voice to go away as a condition for handling MotoGoogle phones. It wouldn’t surprise me, either, if this turn of events for Google Voice surprises Google, which is a very smart company with occasional blind spots.

I think the deal is going to shake up the mobile voice and data businesses generally. And this might not be the end of it, either. What if, for example, Google mounted a bid for T-Mobile? Why not? Yes, it would be expensive but such a move would level the playing field in even more ways, giving Google a 4G network they could really use, shaking-up the incumbent carriers in the process.

What if, what if, what if… Google TV is so far a failure, but this deal could shake that up, too, with MotoGoogle perhaps entering the set-top box business. Certainly Motorola has technology to contribute and what will be interesting to see is how the business shakes out as a result.

This is a bold move on Google’s part. Not a bet the company move, but the move of a confident Larry Page who knows that bold action is required. He has guts, that boy.  And I think it is going to be fun to see how this plays out.

Metropolitan newspapers in Chicago, Philadelphia, Baltimore and other places, seeking to survive, are embracing tablet editions to the point of marketing their own e-readers, most of which seem to be Android tablets. It’s a noble effort to avoid extinction but I’m here to tell you it won’t work. Private label tablet computers are a bad idea for newspapers.

The reason I can make this statement with such conviction is because I once tried to do it myself. The year was 1993 when I convinced International Data Group (my employer at the time) to create an electronic magazine about Microsoft. We called it Microsquish.

The magazine was intended to be distributed weekly in PDF format over this new thing they called the Internet. At more than a megabyte in size Microsquish was bigger than most ISPs at the time would allow as an e-mail attachment, so we had to find another way to send it. Gopher and Fetch were considered.  It was possible we could have done it as a downloadable web document in HTML, but that standard was only two years old and unproven while PDF was working fine. Remember this was pre-Netscape.

We soon had a magazine and a document format but no means of distributing a file so big to so many people (we were hoping for 100,000 subscribers).  Understand we were proposing to somehow deliver over the Internet more than 100 gigabytes per week, a task that at that time could easily have taken more than a week just to accomplish, killing the whole idea of a weekly publication.

So I invented a way to do it. My delivery system, called Pronto, may have been the first Content Distribution Network. It was a Java application intended to run on hundreds or thousands of servers all over the world. We built it and it worked. Pronto could still teach the world a thing or two about reliable delivery, and it scaled beautifully.

But how would people read our magazine? Like any PDF it could be read on computer screens, but to take advantage of PostScript’s beautiful typography and vector graphics it made sense, too, to allow people to print their copy of Microsquish.  Better still, why not avoid the PC entirely and build a Pronto client into a cheap color printer?  That way the paper could be printed overnight and be ready for reading at breakfast.

I visited Canon in Japan and asked what it would cost for a custom inkjet printer with a built-in Pronto client if IDG took charge of actually distributing the printers to Microsquish subscribers.  Canon said the cost of such printers would be… free!  But in order to close the deal I would have to find publications beyond just Microsquish, they said.  I had inadvertently built a publishing system that should be leveraged, they explained. Do a co-marketing deal with the New York Times to gain some real volume, Canon suggested. They wanted to build a lot of free printers.

Well the Times wasn’t interested, nobody was.  As usual, I was 18 years or more ahead of my time, so Microsquish was never born.

The reason Canon was willing to provide the printers for free was so they could make their profit on ink cartridges, which is where the money has always been for those low-end printers. And a Pronto printer was especially attractive to Canon both because of its high volume and because the Pronto client could be adapted to automatically reorder ink as needed.  Cool, eh?

Now jump to today.  The wan and limping Chicago Tribune wants to make its own Android tablet reader, which it thinks it might be able to give away or sell to subscribers for a small price. I don’t think the economics of such a device work without consumables. They need the equivalent of ink cartridge sales for the numbers to work out, but tablets don’t use ink.

These newspapers like to think they’ll get a sweetheart deal from the big cell companies but they won’t.  Everyone who would read an electronic edition already has a mobile phone company.

Maybe the Trib and those other papers can white label a $199 or $299 Android tablet, but I doubt that will generate enough sustainable subscriptions to support an electronic edition. There’s just too much work for too little reward.

Don’t get me wrong, I would love to be wrong about this.  I looked seriously into doing my own Android tablet but it made no business sense. Not enough has really changed since 1993. We’re still ahead of our time.

Which is why I’ve decided to do my own Android phone, instead, rather than a tablet. Now that makes more sense.

A reader came to me this week with a problem. He was being sued in federal court by a company claiming he had defamed them online.  That will be $75,000, please.  I’m not getting into who the reader is, which company is suing, even what jurisdiction, because none of that matters here.  But the case is real and I feel for the reader. So let’s come up with a way to make sure this doesn’t have to happen again.

America is a very litigious society. We love to get all riled up and sue each other, whether our claims are valid or not.  In this reader’s case he is accused of making improper comments in an online forum. Seventy-five other people are also accused in the suit, but they are John Does — unknown individuals. Now we begin to see where that $75,000 claim came from. “All of you defamed me but only one used his real name so he can pay for everyone.”

In this case investors were discussing a public company the shares of which they did or didn’t own, liked or didn’t like, and the company seems to feel the criticism was both unwarranted and hurtful. So they sued, much to the surprise of my reader, who thought he had a right to his opinions.

Of course we have a right to our opinions. It’s expressing those opinions that sometimes gets us in trouble.  I say a lot of strong stuff right here but I also try to do it carefully. It helps if you are telling the truth, of course, but I find it useful even then to clearly identify strong statements as my opinions: “It is my opinion that he is a crook.”

After all, I could be wrong.

Many lawsuits are warranted but some look to me like bullying or even legal extortion. Sometimes it is cheaper to pay an undeserved settlement than to pay even more to win and get nothing. Big companies play this game. But everything is relative: my HVAC contractor sued me for not paying him for the work he didn’t do, following what I believed (note, this is my opinion) to be a similar legal strategy, figuring that I would pay to make the nuisance go away. Only I didn’t pay.  That’s not my style.

But a lot of people do pay and I would guess (again, my opinion) this can have a chilling effect on public discourse even to the point of affecting the public’s right to know.

So let’s fix the system.  Here’s my idea. If I were Facebook or Google+ or LinkedIn  — web sites that like to serve as centers of discourse — I’d offer my members a legal plan. No annual subscriptions or pre-payments necessary, but there would be a $500 deductible. Remember this is for legal services, not for paying settlements, so if you lose you pay the damages, though not the associated legal bills.

Let’s imagine Google gives this a try, because they’ll try just about anything that can be reduced to an algorithm as this can be.

Hire a top law firm; charge a $500 deductible for $1 million in legal services; show a profit by scaring the crap out of people with cleverly written form letters actually sent by androids; rinse, repeat one million times.

And it would work. People would think twice before writing words they might later regret.  But if those words were truly heartfelt and the cause important enough they might be worth $500. And those being talked about might still pursue lawsuits, but it won’t work well for them because Google will always have more money than they do. Game over.

This could be the idea that puts Google+ over the top.

So if you happen to work for Google and agree this is a fabulous idea, I’ll be happy to license it for a very modest sum.  But if you just take the idea and run with it, remember one thing.

I’ll sue you.

In Steve we trust.

All of us were reminded over and over and over during the last few days that Apple has more cash on hand than does the U.S. government. This coincidence means precisely nothing to either outfit.  We won’t see President Obama asking Steve Jobs for a loan, nor will we see Steve Jobs offering one. Yes, the government is broke and yes, Apple has a lot of cash. But GE has almost $50 billion more than Apple, so where are all the GE stories?

There’s a mystery about Apple’s cash and that mystery has to do with Steve’s strategy for holding all that money.  What’s it for? The predominant theory seems to be that Apple intends to make a huge acquisition and periodically there are rumors of Cupertino buying this big company or that, with Hulu being the latest supposed target. And maybe Apple will buy Hulu (actually, I don’t think so, but let’s assume they do) but that will still leave Steve with $74+ billion, so the Apple money story won’t be going away. I think Apple has raised all that money for the sole purpose of….. having a lot of money. I don’t think Steve intends to make any major acquisitions at all, though that says nothing about a post-Steve Apple.

The Silicon Valley corporate tendency to not pay dividends and instead accumulate vast quantities of cash was pioneered by Dave Packard at HP. Starting in the late 1950s, Hewlett-Packard was raking-in the dough but it was at the time also a privately-held company with just two shareholders — Bill Hewlett and Dave Packard.  The founders could easily have demanded dividends or even, I suppose, stock buy-backs, but they were earning plenty of money and preferred to let it ride.  Going further, Packard, as the money guy, didn’t like the Wall Street trend of taking on corporate debt to fund growth.  The less you paid out to shareholders (both of them) he decided, the more growth could be funded internally.  That’s not the way they do it anymore at HP, by the way — that habit having been broken by Fiorina, Hurd, and now Apotheker, though the last can’t really be blamed because the damage was mostly done before he came on watch.

What was pioneered at HP was later emulated at Intel and every other big Silicon Valley company right up through Apple and Cisco today. And since they all did it and their stockholders made plenty of money from capital gains, nobody much complained until fairly recently when some of these companies began paying small dividends.

But not Apple.  Steve Jobs knew what it was like to be poor at Apple from 1976-77 and he knew what it was like to be really poor at NeXT in the early 1990s.  So when he returned to power at Apple in 1997 Steve embraced very conservative financial practices that kept Apple awash with cash to pay for what he was sure would be inevitable missteps. All that money was an insurance policy against Steve’s own inevitable failure.

Only he didn’t fail.

His bets were bold in scope but modest in cost and hardly ever failed.  So Apple’s cash accumulated and accumulated and accumulated until it reached the point where Jobs could no longer view it as an insurance policy. That’s when it became an acquisition fund — not because Steve had particular acquisitions in mind, but because thinking of it as being intended for acquisitions made not spending the money easier to do.

Apple could have made any number of acquisitions. Just as both John Sculley and Gil Amelio tried to sell Apple to Sun Microsystems and failed, Scott McNealy and Jonathan Schwartz tried to sell Sun Microsystems to Apple and failed.  But Steve didn’t make any major acquisitions, saying the opportunities weren’t good enough but also knowing in his heart that buying his way to scale would kill the Apple he was slowly building in his own image.

Remember we’re now 14 years into what is probably a 20-year Apple strategy.  Yes, it has evolved and expanded over time, but the strategy was always headed in the same direction.  Where the typical Silicon Valley CEO thinks about this quarter and next quarter, Steve Jobs had the leisure to think about this decade and next.

When it finally became clear inside Apple that Steve really wasn’t going to buy a big company (Apple’s biggest-ever acquisition, remember, was the recent $2.4 billion purchase of Nortel’s patent portfolio, which got Steve the IP he wanted without the lovely Canadian engineers he didn’t want) the company had to find another plausible reason for holding all that money.

And so Apple today uses its cash to buy parts in huge quantities.  Lately this has mainly meant buying flash RAM and iPhone displays in amounts that move whole markets and guarantee Apple the lowest prices anywhere.  This is important: in an era where interest rates on idling cash are averaging one percent, Apple is using its cash to get 15-20 percent discounts on parts. That’s exactly like earning a 15-20 percent interest rate.

Apple not only gets the lowest prices, they also get the most reliable supply. I won’t call it anti-trust, but I think it is fair to say Apple has an effective consumption-side monopoly for certain mobile components.

IBM tried to do exactly this back in the days of the IBM PC-AT when Big Blue bought Intel’s entire supply of 80286 chips — a bold move that backfired when Intel fell back on second source agreements and quickly doubled production.  IBM was stuck using the same 8 MHz 286 chips for nearly three years to blow through its supply, while Compaq, Dell and others jumped to the 386.  That’s when IBM lost its PC market leadership position, compounding it by requiring OS/2 to work on those stockpiled 286 chips, too.

Apple isn’t IBM.  Cupertino’s purchasing bets are bigger than IBM ever imagined and they’ve paid-off better, too, with Apple keeping an eye on the construction plans of its suppliers so it doesn’t make an IBM-type mistake.

For most Silicon Valley companies, then, holding lots of cash may increase financial flexibility and lower or eliminate short-term borrowing costs, but they also are a persistent drag on earnings just because there’s no way companies can make as much return on their cash holdings as they could make by rolling that money back into their business.  Only Apple is a clear exception to this rule.  Only Apple plays the game big and bold enough to never lose.  But to do that you have to have a bigger pot than the house, or in this case the government.