Last night I watched with morbid fascination as a group of talking heads on CNBC discussed the fall (and subsequent bankruptcy) of Lehman Brothers, the 158-year-old firm that survived the Great Depression, two world wars, and a devastating attack on the American way of life. Yet the investment back could not survive greed, nor its enslavement to the quarterly earnings cycle. Neither could Merrill Lynch, which agreed to sell itself to Bank of America, nor insurance giant AIG, which was scrambling to avoid a credit downgrade that threatened to put it out of business as well.

I watched the drama unfold and wondered if and when this tsunami unleashed by subprime loans and the subprime intelligence of our bankers would reach Silicon Valley. Unable to grasp the nuances of it all, I turned to Bill Hambrecht, one of the Valley’s legendary bankers and co-founder of Hambrecht & Quist, which took some of the largest tech players in the world public. (Disclosure: For a brief while I worked at H&Q Asia Pacific, one of the many offshoots of H&Q.)

H&Q was eventually sold to Chase, which is now part of JP Morgan. Bill went on to start W.R. Hambrecht & Co., a boutique investment bank that uses auctions to sell company stock — most notably those of Google in its IPO. Bill, to put it bluntly, has seen it all — the good, the bad and the ugly. So I stopped by his office in downtown San Francisco earlier this morning to talk about the economic disorder.

I was expecting to find him deeply worried; instead he was amazingly optimistic and, most importantly, wholly confident in the Silicon Valley way of life. Disruption will always prevail, he said, despite the current crisis, the rise of China and any of our backward government policies.

“I don’t think it will  have much of an impact on Silicon Valley as an operating entity,” he remarked when I asked him how the current crisis would affect Silicon Valley. “What is going to be interesting is what happens to the underwriting/IPO market.” In other words, fewer underwriters will be focus on tech companies — unless they’re really big, he said. In other words, it’s just like old times, like back when he started H&Q.

I loved this conversation so much that I decided to share the entire 25-minute chat with you. Roll the tape.

Sitting across from me in the lounge of a posh Half Moon Bay, Calif., resort recently, Kevin Lynch, chief technology officer of Adobe Systems, a software company based in nearby San Jose, outlined his vision of the technology world at large. In particular, Lynch, who bears an uncanny resemblance to Harry Potter (picture the impish wizard as a grown-up) talked about how the confluence of cloud computing, web-centric applications and the emergence of the mobile Internet was going to impact our collective future.

Below are edited excerpts from our conversation:

Om Malik: How is the emergence of cloud computing impacting desktop-centric Adobe Systems as a company?

Kevin Lynch: Adobe is a 25-year-old company and that’s a great achievement because we have had the ability to change. We have changed with technological shifts. And now we are in that situation again. How software is made and sold is changing, so we are changing.

We are taking a balanced approach, and are building a hosted infrastructure. It’s not just about the cloud, but also about the desktop. There are some who are all about the cloud while others think about the desktop first. We have a hybrid approach, and we are doing that with our products like AIR.

Om: Can you talk about your online software-on-demand strategy?

Lynch: We have products like Buzzword, Photoshop Express and Acrobat.com that we are doing online. We are not deploying at the level of raw storage and raw hosting. Instead we are looking at application hosting from our customers’ perspective.

We want to be very specific about hosted online services, which are essentially about the collaboration of creative services. For instance, Premiere Express is being used by MTV where we are enabling (and sharing) video.

We are working on something called CoCoMo, which is a framework that is based on our Adobe Connect conferencing offering and uses Flex front-end technology. It’s going to be available as APIs that are use-specific. We are essentially turning Adobe Connect into components and then allowing developers to do audio- and video-sharing, for instance.

Om: So that means you guys need to learn a whole new language of building scalable infrastructure?

Lynch: We have 600,000 users of Photoshop Express and 500,000 unique visitors to the site every month. About 8 million Flash players are installed every day, and that needs a lot of bandwidth and infrastructure. So we know that, but it is a question facing all software companies going forward.

Om: Adobe Flash is one of your most well-known products. There was some talk about the latest beta version of the software allowing P2P transfers. What are you guys thinking here?

Lynch: Our current goal is to lower the cost of online video deployments so you [can] take advantage of P2P. We are being super targeted in how it is being used. Most of the overall web video traffic is in Flash. (Ed. note: Popular services such as YouTube and Blip.tv use Flash for the playback of videos.) The way we see it, for the whole web [video] to work, Flash has to work reliably, so that’s why we are taking small steps here and using P2P in a very basic form.

Om: What new features are you cooking up in Flash?

Lynch: Interactivity in videos — that is, highlighting certain items in video and making them clickable — is something we are enabling.

Om: What about Flash in mobiles? I know there have been some efforts to marry Flash at the interface level with mobile operating systems like Java.

Lynch: Mobile is really happening right now. There are a lot of screens in our lives right now and to make information accessible across these devices is important. There is no consistent runtime across these devices.

Right now, there is no single technology that has a dominant reach. I think that’s going to change over next three to four years. We are working on that, and have initiated an Open Screen Project that will make designing for multiple screens less of a challenge.

Om: You seem to have strong views about mobile and how we need to think differently about mobile as an opportunity.

Lynch: People will start to think about the small screen first, and that is a sea change. Mobile is central to the future of computing and I think all software and web companies need to look at mobile first and then from there, extend to PCs.

Om: So you like these “mobile Internet devices?”

Lynch: I am a big fan of the MIDs. I think the form factor is the sweet spot and there will be some experimentation (on design) going forward. The big challenge there is power, and batteries are a big drain.

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