In the summer of 1983, the company then called Warner Communications (WCI) was in big trouble. The problem was its Atari division, which made games. But that bubble had burst, and a cascade of lossesthey would exceed $1 billion, which was actually a sizable number in 1983had begun.

Worse, several Atari executives, having presciently foreseen the cataclysm that was about to overtake Atari financial results, sold their WCI stock at a time, and in a manner that one could argue was shrewd planning, but which the SEC preferred to see as insider trading. It was not a good time at Warner. In fact, it was a time when the inside joke at the headquarters at 75 Rock was that the next time someone heard a WCI executive say we were going to fund a transaction with a revolver, no one could be quite sure what that meant.

Enter Rupert Murdoch, who had a nose for blood in the water that most sharks would envy. Here some of the information gets anecdotal. Supposedly, Murdoch told Warner CEO and founder (sort of) Steve Ross that he was interested in buying WCI stock. Reportedly, Steve told Rupert something like fine with mewise investment.

Whether that feeling of good will and camaraderie lasted days, hours or minutes is a matter of some debate, but that is really unimportant. What is important is that Steve Ross quickly realized Rupert was coming after him at a time when all of Rosss resources, personal and financial, were at a low.

Arthur Liman, a highly regarded legal counsel and Ross eminence grise, brought in another client of his, Herb Siegel, CEO of Chris Craft and an aspiring entertainment mogul, to play White Knight. Liman, Siegel, and Ross constructed a so-called Stock Exchange Plan in which WCI would receive a 42.5 percent interest in BHC, the Chris Craft television subsidiary (yeah, I know, you thought they made boats) in exchange for 19 percent of the voting stock of WCI.

There were various ways to characterize this arrangement ranging from brilliant to a nefarious marriage of convenience. A disinterested third party, the Delaware Court, got involved in this semantic dispute, and it turned out the court was uninterested as well as disinterested. It said, in a manner of speaking, Go away and leave us alone.

Meanwhile, the Court did not force WCI and Chris Craft to unwind the transaction. With the exchange of shares now firmly in place, an acquisition of WCI by Murdoch became close to impossible. The circumstances also created a marriage of Ross and Siegel that was destined for predictable disaster, but this was one of those not infrequent any-port-in-a-storm corporate marriages.

Despite these brilliant, or nefarious, machinations, Ross worried. (Steve was not given to needless worry, and often displayed his iron gut in business transactions. What I am saying is that if Steve was worried, and he was, there were good reasons.)

Accordingly, despite the counsel of many advisors, Steve pushed for, and, under the What-Steve-wants-Steve-gets doctrine, secured the approval of the WCI board to buy out Murdochs WCI shares at a very sizable premium. Lets just say it was a lot more than you would have gotten if you had sold your WCI shares on the stock exchange the same day.

Once again the world was left with a semantic puzzle: Was this greenmail or not? Greenmail is what I used to call go-away moneythe kind I would try to get from my older teenage sister to leave her and her boyfriend alone, pretty much forever. Two years after the WCI buyback of its shares from Murdoch at a substantial premium, the Tax Reform Act of 1986 did its bit to make such go-away inducements, whatever you chose to call them, costly as well as unpopular.

That was thirty years ago, and now HES BACK. Makes you wonder if there were some sort of expiration date on the original go-away agreement, and whether Warner, miscalculating Ruperts longevity, should have asked for a longer deal.

Warren Christie is a former executive of Warner Communications and its successor, Time Warner.

“21st Century Fox can confirm that we made a formal proposal to Time Warner last month to combine the two companies,” said spokesman Nathaniel Brown in a prepared statement. “The Time Warner Board of Directors declined to pursue our proposal. We are not currently in any discussions with Time Warner.”

The cash-and-stock offer from 21st Century Fox was to acquire all outstanding Time Warner shares for a combination of 1.531 21st Century Fox Class A non-voting shares and $32.42 in cash per share.

More: The Fortune interview: Rupert Murdoch

The potential deal would merge two companies that have recently spun off their publishing assets to focus more on core television and film businesses. Twenty-First Century Fox FOXA spun off News Corp. NWSA , the owner of The Wall Street Journal and other print properties, roughly a year ago, while Time Warner recently unloaded Time Inc. TIME , which owns People, Entertainment Weekly, Fortune and other magazine properties.

Time Warner, meanwhile, later Wednesday morning confirmed it had rejected the 21st Century Fox proposal, saying there was “significant risk and uncertainty” to 21st Century Fox’s ability to govern and manage the combined company.

“There are considerable strategic, operational, and regulatory risks to executing a combination with Twenty-First Century Fox,” the company said in a statement.

Earlier this month, Time Warner Chief Executive Jeff Bewkes told Variety he didn’t know anything about reports that 21st Century Fox and potentially Google GOOG were eying a takeover of the media conglomerate.

At stake, if a takeover of Time Warner TWX were to occur, would be control of a media empire with a market capitalization of more than $63 billion. Time Warner’s current assets all focus on TV and film content. They are Turner Broadcasting, which includes CNN, HBO and Warner Bros. Twenty-First Century Fox, meanwhile, controls the namesake film studio, as well as Fox News, Fox Business and Fox Sports.

Murdoch is a well known media mogul who also has established a track record of getting his way when it comes to acquiring prized media assets. For example, his $5 billion offer to buy Dow Jones & Co. in 2007 was a surprise bid for one of the nation’s last family-controlled newspaper companies. Though the Bancroft family, which owned a controlling stake in the publisher of The Wall Street Journal, put up a small fight, the family eventually agreed to a slightly larger takeover. Those print assets are now controlled by News Corp.

One notable takeover target slipped through Murdoch’s fingers, however. In 2011, News Corp. in its old form dropped a plan to take full ownership of satellite broadcaster BSkyB. That bid was sidelined as the company fended bad press in the United Kingdom due to a phone hacking scandal at a UK newspaper that has since been closed.

The New York Times, which cited people briefed on the matter for its report, said Fox indicated it would sell CNN to appease regulators as Fox News and CNN directly compete. That could potentially lead to a bidding war for the well-known news channel.

Media stocks rose Wednesday on news of the rebuffed Time Warner offer.

Rupert Murdochs decision to demote his own son is a perfect example of why hes endlessly interesting. Sometimes he makes business decisions purely with his head, canny and shrewd, occasionally ruthless. Thats what he did this time. But sometimes he makes giant decisions with his heart, appearing misguided or just nuts; for example, he runs the New York Post and the Times of London at deep losses that will apparently continue forever, and he just doesnt care.

Overall, the Murdoch method has worked well for him. For investors in his News Corp. NWS , it has not worked nearly as well as it should have. Recent events show the problem clearly. Amazingly, amid the U.K. phone hacking scandal that led to James Murdochs downfall — a mushrooming story that a member of Parliament yesterday called the single largest corporate corruption case in this country for more than 250 years — the Murdoch method is still working, at least for him.

James was, among other things, chief of News International, the News Corp. division that owns the companys British newspapers. When the phone hacking scandal erupted at one of them, the News of the World, Rupert made one of his famously tough-minded decisions, abruptly closing the 168-year-old paper. News Corp.s value dropped by billions of dollars as investors feared more revelations would follow.

They have followed. An inquiry still underway yields worse disclosures every day. Witnesses have reported that phone hacking was conducted at industrial scale, that News International employees bribed the police so widely that Scotland Yard became in effect a subsidiary of News International, that employees destroyed evidence massively, and that all of this was approved at the highest levels. The highest levels would seem to include James Murdoch. As this mess gets bigger and uglier, Rupert concluded that James had to go. Hes out as News Internationals boss and will work in New York City on the international TV business and other vaguely defined tasks.

Heres the surprise: The stock isnt going down anymore. As the scandal gets worse, the stock rises higher. It fell to $14 last summer; it was over $20 when James got the shove. Investors figure this historic scandal wont hurt profits much; it wont make people stop watching The Simpsons or refuse to go see the next Avatar.

At the same time, Rupert keeps making heart decisions. When he showed up in London last week with elder son Lachlan in tow, News Corp. kremlinologists sensed that a new heir apparent was displacing James. Ruperts determination to have one of his sons eventually run the company makes no economic sense; it discourages other ambitious managers from working there. He just doesnt care.

But hey, the stocks up whats the problem? The answer is its a much bigger problem that afflicts News Corp.s shareholders, namely the penalty they pay for investing at all in a company with terrible governance. Through dual-class stock — always a warning sign for investors — Murdochs 12% economic interest in News Corp. translates into effective control of the board, because he controls 39% of the voting shares and his business partner Prince Alwaleed bin Talal controls another 7%. Thus the 88% owners know they dont run the show. Murdoch, with his unpredictable head-and-heart method, can do whatever he wants.

The result is that when Wall Street analysts add up the value of News Corp.s pieces, they get a total thats almost twice as great as the companys actual stock market value. Investors impose a Murdoch discount because they know the company isnt being managed for them.

The outlook isnt bright. Yes, the market is telling Murdoch that if he gave up some control — and with it, the ability to make those heart decisions whenever he wants too — he could be twice as rich as he is. But when youre worth more than $6 billion, how much do you care?

The bottom line for Murdoch is that hes over $1 billion richer today than he was when the scandal broke last summer. Its hard to see why he would conclude that he should change his ways one bit.

Here’s the problem. Or, rather, the problems. It’s going to be tricky to value MySpace, which will be the linchpin of the value of what News Corp. is contributing. If whatever News and Yahoo were to assemble didn’t add up to Microsoft’s current offer ($31), or counter-offer, the board of directors at Yahoo would be in a pickle.

Couldn’t they just accept a lower bid with the argument that Yahoo is worth more independent than selling out? Sure. Then they’d get sued. They’ve got to be able to best Microsoft’s offer in a reasonable timeframe, or they’re not doing their fiduciary duty.

There’s more. In a note to clients Wednesday, UBS analyst Ben Schachter (who had a buy rating on Yahoo at $19, when many of his competitors had lost faith, because he figured Yahoo’s falling price would provoke a sale, or at least a bid) reasons that the only way for a YahooSpace to achieve necessary profits would be do a search outsourcing deal with Google (GOOG). That’d bring the companies back to the same regulatory conundrum they’ve already been grappling with: Google’s search share is too big. There’s also the question of whether Yahoo needs MySpace. After all, “Yahoo’s problem has not been a lack of inventory, ” writes Schacter, meaning that it already has a huge audience. It’s problem, he writes is “its poor execution on optimizing monetization.” That means Yahoo isn’t so good at making money from its 500-million-plus audience. Schacter has a $34 price target on Yahoo because he thinks Microsoft will raise its bid.

So is Yahoo wasting its time talking to News Corp.? Of course not. Its stock traded over $30 Wednesday, closing at $29.88. To the point of my earlier post, that’s a sign investors expect a higher bid from Microsoft, not that it’s overly impressed with a News Corp.-Yahoo tie-up.

The buyout gossip began with an item last week in the UK version of TechCrunch. Never mind that LinkedIn founder Reid Hoffman (a made man in the PayPal mafia and a buddy of mine) categorically denied the rumor in the Daily Telegraph. Anything that suggests that Rupert Murdoch would expand his social-networking empire is sure to set tongues wagging. Breakingviews.com wrote an intelligent summary of why a LinkedIn acquisition would make sense, largely because of the opportunities to leverage LinkedIn’s tools with the Wall Street Journal readership.

Not surprisingly, Nye didn’t deny that News Corp. made an offer for his company. Instead, he said that when he joined the company he told the board — comprised of Hoffman, Sequoia’s Mark Kvamme and Greylock’s David Sze — that he was only interested in taking the job if the goal was to “go long.” But is he selling out anyway? “We’re excited about building this company,” said Nye. “It would take a helluva lot to get us off that path.” Does that mean $1 billion? “A lot more than that,” said Nye, who worked at Procter & Gamble (PG), Intuit (INTU) and Advent Software (ADVS) before joining LinkedIn.

LinkedIn clearly is playing to win. The company has mushroomed from 60 employees when Nye joined in February to almost 200 today. At the time, LinkedIn had 9 million members; today it has nearly 17 million. Nye predicted revenues will range from $75 million to $100 million next year.

LinkedIn has the virtue of having survived adversity. Before Facebook and MySpace existed — back when Friendster was hot — LinkedIn was just getting going. It’s still going. Independent or part of News Corp., it’s fun watching this plucky company succeed.

When I first got out of law school and was clerking for a federal judge in Texas, I did see a few comparable pleadings, though those were usually filed “pro se” — i.e., by the plaintiff himself, without the assistance of a lawyer. One, I remember, was a civil rights suit naming as defendants the President of the United States, all nine justices of the U.S. Supreme Court, the plaintiff’s ex-wife, and a local Pizza Hut.

Like that complaint, Regan’s reads like one of those humor pieces in The New Yorker, where it not-so-gradually dawns on the reader that the narrator is out of his gourd. Even though you’re hearing only one side of the story, that’s enough to make up your mind against the griper.

You’ll recall that Regan, who headed the ReganBooks imprint at HarperCollins, was fired in December 2006 for allegedly using anti-Semitic language in a telephone call with company lawyers, which Regan denied. The call occurred not long after the twin publicity fiascos surrounding Regan’s plans to publish O.J. Simpson’s quasi-confessional If I Did It book and, shortly thereafter, a first-person novel about Mickey Mantle in which the author assumed Mantle’s voice and described, inter alia, a tryst with teammate Joe DiMaggio’s wife, Marilyn Monroe.

Regan’s 70-page, 345-paragraph, 24-count complaint was filed in state court in Manhattan on Tuesday, and is available here. It mainly alleges defamation and breach of contract, but, almost in passing, it throws in a couple counts of sex discrimination, too. “Under Jane Friedman’s direction,” she alleges, “there is . . . a pattern within HarperCollins of firing high-level women in order to surround herself with men.” (She gives no examples besides herself.)

The complaint is signed by attorney Brian Kerr, of New York’s 175-lawyer Dreier firm, but it has an astoundingly unfiltered quality to it. Regan is also represented by famed Los Angeles entertainment lawyer Bert Fields, but the complaint doesn’t list him as counsel. (Through Regan’s spokesperson, both attorneys declined comment.)

Regan’s complaint boasts that she built a “publishing and media juggernaut,” whose recent publications have included, inter alia, “no fewer than three books related to the Scott Peterson case.” It quotes an article describing how Regan’s “early experience as a reporter for the National Enquirer was great training in the art of the popular,” and how her winter 2006 catalog featured a “cover illustration of Regan stretched across a pile of books,” prompting an “unprecedented” article in The New York Times. (The Times‘s headline was, “She’s Not Just the Publisher, She’s the Cover Model, Too.”)

But what’s remarkable about the complaint is how far it ventures beyond merely disputing that she said anything anti-Semitic in that fateful phone call — a seemingly winnable, he-said-she-said squabble had her lawyers stopped her there.

Instead, they’ve allowed her to allege that News Corp. had actually been plotting her demise for at least five years before the Simpson debacle. “This smear campaign was necessary to advance News Corp.’s political agenda, which has long centered on protecting Rudy Giuliani’s presidential ambitions,” they write in paragraph 1 of the complaint. “Defendants knew they would be protecting Giuliani if they could preemptively discredit her,” the complaint continues.

As I understand it, Regan’s saying that News Corp. has been undermining her credibility for years because it feared she knew about unspecified skeletons in Giuliani’s closet that she had learned during her 2001 affair with then-Mayor Giuliani’s then-Police Chief Bernard Kerik and, further, that the company anticipated Regan might go public with if Giuliani ever ran for president. (Or maybe she is only saying she knew skeletons about Kerik, but those, by association, would have been harmful to Giuliani; I’m not sure.)

The company also needed to discredit her, she theorizes, in case she were ever to reveal that in December 2004 two senior News Corp. executives had allegedly advised her to lie to investigators and conceal evidence from them when they began probing Kerik.

A spokeswoman for News Corp. has called the suit “preposterous,” and a spokesperson for HarperCollins and Friedman echoed that sentiment to me.

The defendants’ first attempt to discredit Regan occurred in 2001, she alleges. (The timeline is puzzling, since Kerik did not first come under suspicion for criminal wrongdoing until 2004, and, as a consequence, it wasn’t publicly known until then that he might pose any problems for Giuliani, assuming Giuliani ever did announce for president, as he finally did this year. Kerik pled guilty to two state misdemeanor charges in 2006, and was charged in a 16-count federal indictment last week. He has pleaded not guilty to the federal charges.)

Anyway, the 2001 incident was one that Regan’s former close friend Michael Wolff wrote about in a Vanity Fair article in May 2007. As Wolff put it: “Judith lost a cell phone on the set of her TV show [and] she was able to have N.Y.P.D. detectives sent out to the homes of the production-crew members she suspected of having snatched it.”

In the complaint, Regan protests that this was a false, nasty rumor spread by, once again, an unnamed senior News Corp. official. The truth was, she explains, that she had not sent the detectives out to catch the guy who had stolen her phone — no, not at all. Rather, it had been her lover, Kerik, who “used his authority as NYC Police Commissioner to send detectives out to investigate” and “who caused the detectives to knock on the doors of Fox News employees.”

In Regan’s mind, evidently, she has now set the record straight. In like manner, she then proceeds, point-by-point, to give her side of a litany of highly embarrassing events, unwittingly confirming most of them in most key respects. (An exception is the anti-semitic remarks, which she consistently denies.)

Along the way, Regan also dredges up some stories I hadn’t previously heard about and which, had I been her lawyer, I might have chosen to let lie. She complains, for instance, that some unidentified person — it’s unclear from the complaint if it’s even a News Corp. employee — had attributed Regan’s success to her “golden vagina,” but that “when Regan complained about this sexist and insulting remark, nothing was ever done.”

In any case, Regan alleges, News Corp. and Friedman, in pursuit of their farsighted goal of undermining Regan’s credibility, set about poisoning the minds of a great many people, evidently with considerable success. The defendants allegedly disparaged her “to prospective and new employees at ReganBooks,” worked to “turn them against” her, tried “to get them to file complaints against her,” failed “to curtail the activities of HarperCollins insiders” who were constantly making “disparaging remarks” about her; and, all in all, “encourage[d] a culture of gossip, back-stabbing, negative leaks and hostility inside and outside the company.”

Moreover, they “plant[ed] employees within ReganBooks to ‘keep an eye on Regan,’ and report back to the HR department at HarperCollins,” she maintains, and “fail[ed] to investigate the serious security breaches that resulted in (among other incidents) an extremely heavy lighting fixture falling out of the ceiling and shattering Regan’s desk.”

Ironically, one of the accusations that Regan says was unfairly leveled against her, according to the complaint, was that she was “out of control.” Yet, of course, that’s precisely the impression left by the complaint itself.

Slackjawed after reading the complaint, I was struggling to put into words my reaction to it. Now more curious than ever about Regan, I read Wolff’s Vanity Fair piece for the first time. I soon found a description of how I was feeling that seemed to fit perfectly, though he was responding to a different document. He was describing his reaction to the O.J. Simpson book itself, when he finally read it in connection with his story. It was such a “run-amok, phantasmagorical marketing-and-merchandizing scheme,” he wrote, “that all you do, as you read it, is consider the psychopathology of how it ever came into being.”

I can’t improve upon that.

REPLY FROM JUDITH REGAN’S CAMP: (E-mail from Allan Mayer, of 42 West, the public relations firm representing Judith Regan, received Saturday, November 17, at 308 pm):

I write as a representative of Judith Regan. Hannah Arendt noted that it is characteristic of the totalitarian style to substitute questions of motive for questions of fact. This seems to be no less true in the blogosphere, though for motive one might substitute tone. Certainly, your musings on Judith Regans case seem singularly unconcerned with the facts of the matter namely, that the defendants named in her lawsuit participated in a campaign to destroy her reputation and credibility because they were (and are) afraid of what she knows about Bernie Kerik and Rudy Giuliani. To make such an assertion without any evidence to back it up might indeed be preposterous, as News Corp. maintains. But that happens not to be the case here. There is hard evidence corroborating Ms Regans claims, and when it is introduced in court (as it will be at the appropriate time), I hope you will have the grace to apologize for your armchair psychologizing and gratuitous insults.

An recent interesting throwaway line in a really fascinating article shed some light on this debate:

The kids all said that a) no one listens to the radio anymore, b) they mostly steal music, but they don’t consider it stealing, and c) they get most of their music from iTunes on their iPod. They told us that MySpace is over, it’s just not cool anymore; Facebook is still cool, but that might not last much longer; and the biggest thing in their life is word of mouth. That’s how they hear about music, bands, everything.

That’s a quote from Mark DiDia, head of operations for Columbia Records, which is owned by Sony (SNR). It comes from an article in last weekend’s New York Times Magazine, “The Music Man,” about Rick Rubin, the guru-like record producer that Sony hopes will save its slowing dying business. The “kids” DiDia refers to are recent college grads in a focus group. I’m certain that the management team at MySpace and Facebook will tell you a million reasons why the kids are wrong and that their business story will continue for years. Still, the thing about focus groups is that they don’t lie.

For what it’s worth, the kids may think Facebook is about to become uncool, but the oldsters are just discovering it. When I returned from a weeklong vacation I had 23 “friends” requests at Facebook, 9 from people I actually consider my friends or meaningful acquaintances. I go to Facebook about once every three weeks just to see who has asked to be my friend. I quickly leave, however, and suspect most of the 30-year-old-plus people who are now finding out about Facebook will do the same.

Incidentally, I am using the demure-to-the-point-of-nauseating phrases “S-word” and “F-word” because my earlier feature story about this case (entitled “Bleep Deprivation,” and published in the March 19 issue of Fortune) stirred some internal controversy at the time with some of our partners and affiliates, because it used the actual, unexpurgated Anglo-Saxon expletives at issue. That story is now available here. (Alternatively, you can see what it looked like in the magazine (with graphics) by following these instructions: click here for the digital version of that whole issue; then click on the magazine photo; then click on the window where it says “C1 of 233″; when the window goes blank, type in “53,” which is the page number of the story; then click “enter.”) (For FCC chairman Kevin Martin’s unprintable reply to the ruling, try here .)

In any event, in yesterday’s ruling, in Fox Television Stations v. FCC, two of the three judges on the appeals panel decided that the FCC had acted “arbitrarily and capriciously” when, in 2004, it did an abrupt about-face in longstanding policy and discarded its so-called “isolated and fleeting expletives doctrine.” Under that doctrine, the FCC had, until then, essentially given broadcasters of live TV a free pass if someone unexpectedly ran off the reservation and used one or two expletives in isolation. Beginning in early 2004, however, after Bono used the F-word in accepting a Golden Globe award on a live broadcast on Fox Television Stations – a unit of News Corp. (NWS) – the FCC decided to crack down and begin imposing a one-strike-you’re-out rule. It later also applied the new rule to two similar incidents on the Billboard Music Awards, which were being broadcast live by NBC, a unit of General Electric (GE). (Viacom (VIA) also intervened in the case; It is still challenging, in a federal appeals court in Philadelphia, the fine levied against it for the Janet Jackson incident during Super Bowl XXXVIII, which was broadcast on CBS (CBS) and produced by MTV.)

The two judges in the majority, Judges Rosemary Pooler and Peter Hall, said the FCC had failed to articulate a reasonable basis for the shift in policy. They also strongly hinted that the FCC should not waste its breath trying to provide a more convincing statement of reasons now since, in all likelihood, the policy it tried to enforce would probably be unconstitutionally vague in any event.

The third judge on the panel, Pierre Leval, dissented. Interestingly enough, however, he did so only as to the F-word. He felt that while the FCC had adequately justified its decision to regulate even a single use of that word, he agreed with his colleagues that such draconian regulation of the S-word would probably violate the law and, possibly, the constitution. He reasoned that back in 1976, when the U.S. Supreme Court first upheld the federal law that purports to outlaw indecency in radio and TV broadcasts, it emphasized “the accessibility of broadcasting to children.” Judge Leval then continued: “The potential for harm to children resulting from indecent broadcasting was clearly a major concern justifying the censorship scheme. In this regard, it seems to me there is an enormous difference between the censorship of references to sex and censorship of references to excrement. For children, excrement is a main preoccupation of their early years. There is surely no thought that children are harmed by hearing references to excrement.”

Though this is just a dissenting opinion of course, even dissents can become influential over the years if they have persuasive force. So tell me readers and parents, given children’s “preoccupation” with excrement, should the regulation of fleeting and isolated references to “s–t” be unconstitutional?

A four-year-veteran at Google (yes, typical stock-option grants take four years to vest), Feikin was cut from a different cloth than other Googlers. Her glittering resume includes stints at Time Warner’s AOL unit (TWX), News Corp.’s (NWS) 20th Century Fox and the consulting giant McKinsey. (No slouch: She’s Harvard Law and Duke undergrad to boot.) Google Video’s relative lack of traction compared with YouTube shows that on the Internet even a well funded product guided by an experienced and savvy strategist doesn’t always win.

In an email to her peeps Feikin reflected on her “amazing years” at Google, which included the “launch and phenomenal growth of a once-tiny product called Google Video.” She said she’s leaving for “new adventures.” She shouldn’t have any trouble finding them.

Does a deal make sense? Absolutely. Yahoo effectively could become MSN on steroids. The two search-advertising also-rans finally would be able to push serious traffic through their ad-search delivery platforms. Microsoft would bring major financial resources to Yahoo, which because of its underperformance in search has been cost-cutting elsewhere. (An Internet business cost-cutting during an advertising boom is a sad thing to see.) A tie-up also might explain why Yahoo CEO Terry Semel is still around. Everyone assumed he’d be gone by now. But Semel is a dealmaker, and this is an enormous deal.

Having said that, every time I’ve discussed a Microsoft-Yahoo merger with people who know the two companies well, they remark on what a disaster it would be. Those ad-search platforms, for example: each company has spent a fortune developing their own. It’d be a bitter pill to ditch one. Microsoft remains light years behind in truly understanding the Internet, at least compared with Google’s mastery. Google (GOOG) would love this deal, at least for a couple years, in the same way Dell (DELL) was ecstatic when HP (HPQ) bought Compaq. (Dell squandered an opportunity by not taking that deal seriously enough, but I digress.)

The market, of course, takes this report extremely seriously. Investors don’t care if a banker is trying to pump up a deal or if this talk is old or new. Yahoo’s stock was up 19% by late morning. Like the response to News Corp.’s (NWS) bid for Dow Jones (DJ) , the market’s reaction might make this deal a reality.

Right there I was reminded why journalists are so smitten with Murdoch, even the ones who disagree passionately with his politics. The guy loves journalism. I mean, he really loves the give and take, the analysis, the insight, the nasty fights and so on. The same stuff journalists love. He’s also passionate about business, which is why he never has made a secret about coveting The Wall Street Journal, in his — and everyone else’sview — the class act of daily business journalism in the English language. He has watched the Journal maintain its greatness, even as it demeans itself with a smaller size and endless lifestyle stories. Not that Murdoch judges. His papers publish the lowest of the low and the highest of the high. The Journal would find its place at the top of the News Corp. (NWS) heap. (My bias should be noted. I write day and night for Fortune Magazine, but I’m also a regular commentator on the Fox News Channel, a News Corp. property.)

Will the Bancroft family sell? The market has an opinion on the answer to that question. It bid up shares of Dow Jones (DJ) by 57% moments after Dow Jones disclosed Murdoch’s offer. Who else might jump in? When one of the greatest properties around is up for grabs, everyone needs to look. That will include the Washington Post Company (WPO), Gannett (GCI) and Pearson (PSO). Goldman Sachs (GS) just raised a new $20 billion investment fund. Who knows? Maybe Goldman dreams of better coverage in the Wall Street Journal.

A final note. Shares of News Corp. have been on fire for a while now. Since the acquisition of MySpace parent Intermix, actually. And the market approves of its bold move today, initially sending the shares down less than 3%. People forget, however, that for years Wall Street punished News Corp. with a “Murdoch discount.” Investors worried about the downside of a long-term-focused chief executive who periodically makes giant bets that don’t always pay off. An example: The Wall Street Journal recently highlighted the bizarre story (subscription required) of Gemstar (GMST) CEO Henry Yuen, in which News Corp. invested and ended up taking $6 billion in writedowns. The Journal called that move “a low point in Mr. Murdoch’s career as an investor.”

I’m guessing the Journal’s reporters and editors — and investors — won’t view Murdoch’s latest gambit as a low point of any kind.

Cramer’s latest relapse came to light last month, of course, when clips surfaced on YouTube of an online video interview he had given last December to TheStreet.com, a site Cramer cofounded. For the clip, try here or here. On the show, Cramer purported to describe how he used to generate activity in a stock — investing say $5 million in the futures market to spur it upwards — and then lying to gullible traders and reporters, making up some story about why powerful players had told him they were bullish. The press then either propagated the rumors or simply reported the futures activity, causing the stock to climb still further, allowing Cramer to, in essence, get maybe a $100 million worth of market leverage from a $5 million investment. He also described engaging in analogous deceptions in order to “knock down” stocks that he was shorting, or crucial “fulcrum” stocks that were carrying along other stocks he was shorting.

He suggested that this sort of activity could become virtually a matter of survival to a hedge fund manager as the fund approached “payday,” when customers’ profits or losses were tallied and they were entitled to withdraw their money if they weren’t satisfied. “You can’t [legally] create a — yourself, an impression that a stock’s down,” he said. “But you do it anyway, ’cause the SEC doesn’t understand it. . . . That’s the only sense that I would say this is illegal. But a hedge fund that’s not up a lot really has to do a lot now to save itself.”

As an example, he spoke about Research In Motion (RIMM), which was both up and playing a “fulcrum” role in the market last December, when the interview was occurring. “When your company is in a survival mode,” Cramer said, “it’s really important to defeat Research In Motion and get the Pisanis of the world” — alluding to his colleague, CNBC reporter Bob Pisani — “talking about it as if there’s something wrong with RIMM. Then you call the [Wall Street] Journal and get the bozo reporter on Research In Motion. And you feed that there’s a – that Palm’s got a killer [new device] it’s gonna give away. These are all the things you must do on a day like today. And if you’re not doing it, maybe you shouldn’t be in the game.”

According to a securities law professor who watched the tape at my request, many of the recommended activities appeared to violate either Section 9(a) or 10(b) of the Securities Act of 1934 (or both), which prohibit stock manipulation and fraud, respectively.

“It’s real simple,” said the professor, who requested anonymity. “If somebody lies to the press with a state of mind embracing intent to deceive . . . and it’s foreseeable that it will affect a stock price, then the person is liable.” That’s so, he notes, even if the deceiver doesn’t even personally trade in the stock. “Then add to that, he traded the stock: Game over.”

After the The New York Post and Fox News began reporting on the peculiar Cramer clip in March, Cramer appeared on Imus and argued that his TheStreet.com appearance had actually been a sort of If-I-Did-It turn. He had only been describing how he would have committed these offenses if he’d been of such a mind, and how he believed other hedge funds actually were behaving; he had not been confessing that he personally had behaved that way. “I tried to run a clean shop,” he said. (He also apologized to, and spoke highly of, Pisani.)

As for what precisely makes Cramer tick, that’s well beyond the scope of this blog, and a good topic for writer-neurologist Oliver Sacks to tackle. (Fortunately for Cramer, his malady is not debilitating; it evidently leaves no lasting scars on those who suffer from it so long as they maintain good cable ratings.)

But in an era where hedge funds now dominate, the Cramer story merits more attention than it received, which is why I’m belatedly revisiting it. (I stayed away initially, expecting deep dives by the Journal and Times, but they never materialized. All the clip ever seemed to attract were a flurry of blog postings and some gleeful gotchas from subsidiaries of News Corp. (NWS) , which is about to launch a cable business news channel that will compete with CNBC. (Perhaps News Corp. also resented Cramer’s encroachment on the If-I-Did-It genre, which News Corp. invented.)

Though Cramer was discussing manipulations that were intended to last only a few hours, other hedge fund manipulations may be playing out over many months. My colleague Bethany McLean did a fascinating feature story (for which, click here) recently depicting what appears to be a paradigmatic contemporary cat-and-mouse story: A hedge fund unearths allegedly negative information about a public company, shorts the stock, and then relentlessly seeks to publicize the negative information; the company, in turn, tries to silence and intimidate its critics through lawsuits, while launching a press counteroffensive. In the past two years or so Biovail (BVF), Overstock.com (OSTK), and Fairfax Financial Holdings (FFH) have all sued hedge funds alleging that they were manipulating and sabotaging their stock.

The playing field for this savage contact sport is the media, where reporters like me are desperately left trying to figure out what is news and what is pseudo-news. (Even an undeniable flurry of futures activity may be being created solely for the purpose of having it be reported. If we don’t know what’s causing it, should we refrain from reporting it?) The question seems to be not so much whether to be manipulated, but rather, when, and by whom?

Traditionally, judges have stuck their heads in the sand and assumed that the market sagely ignores unattributed rumors. “Investors tend to discount information in newspaper articles and analyst reports when the author is unable to cite specific, attributable information from the company,” Judge Jon O. Newman optimistically wrote in 1993 for a unanimous panel of the federal appeals court in New York. “Thus, the opportunity to manipulate stock prices through the planting of false stories is somewhat limited.”

Maybe that was true in 1993, before user-friendly Internet browsers and a host of other technological advances turbo-charged the pace of news-gathering, stock-trading, and rumor-mongering. But if Cramer’s latest candor attack means anything, it means that, as an empirical matter, Judge Newman is dead wrong. In effect, Cramer’s telling Newman, my securities professor source tells me: What are you, nuts?

“It’s a fun game, and it’s a lucrative game,” Cramer told his host, Aaron Task. “Who cares about the fundamentals? . . . The great thing about the market is it has nothing to do with the actual stocks.”

In this setting, what’s a business reporter to do?