Is using a forged Social Security Number -- but your own name -- to obtain employment or buy a car an identity theft crime? Lately, U.S. courts are saying it's not.

The most recent judicial body to take on the issue, the Colorado Supreme Court, ruled last month that a man who used his real name but someone else's Social Security number to obtain a car loan was not guilty of "criminal impersonation," overturning convictions by lower courts.

That follows a ruling last year by the U.S. Supreme Court that a Mexican man who gave a false SSN to get a job at an Illinois steel plant could not be convicted under federal identity theft laws because he did not knowingly use another person's identifying number. The ruling overturned an opinion by a federal appeals court in St. Louis -- and contradicted earlier findings by circuit courts in the Southeast, upper Midwest and the Gulf states.

It hasn't been a shutout for identity theft prosecutors, however. In July, an Iowa state appeals court came to the opposite conclusion, affirming a lower court decision that a man who used a California woman's SSN to obtain employment was guilty of breaking that state's identity theft law.

Identity theft can take many forms, but one of the most vexing is so-called "SSN-only" ID theft.  In it, an imposter uses a victim's SSN --- sometimes purchased from a broker, sometimes nine digits pulled out of thin air -- to obtain credit or to provide necessary documentation to obtain work. In many cases, SSN "borrowing" is successful and the imposter goes undetected for years.

At the heart of all these cases is a simple question: Does the mere use of an anonymous victim's SSN break identity theft laws?

Mari Frank, a California-based lawyer and identity theft victim advocate, said courts are failing to recognize the real harm caused by imposters, even if imposters are unaware of that harm.

"You can't say there's no victim," she said. "That Colorado ruling really aggravated me," she said.  Courts are mis-applying impersonation laws, and that could really hurt victims. "(The judges) just don't get it."

Immigrant advocates vs. ID theft victim advocates
Many of the recent cases stem from a series of raids conducted by the Immigration and Customs Enforcement service at meat-packing plants in the Midwest during the waning days of the Bush administration. Prosecutors got in the habit of using federal identity theft laws to seek a mandatory two-year felony sentence enhancement for convicted suspects, and used that threat as bargaining tool to push suspects into plea bargains.  But the 2009 Supreme Court ruling essentially took that bargaining tool away from prosecutors.

The issue pits immigration rights advocates -- who say that undocumented workers are fundamentally different from identity criminals trying to steal credit -- against identity theft victim advocates, who think tougher imposter laws are needed.

 "An immigrant who uses a false Social Security number to get a job doesn't intend to harm anyone, and it makes no sense to spend our tax dollars to imprison them for two years," Chuck Roth, litigation director at the National Immigrant Justice Center in Chicago, told the New York Times after the U.S. Supreme Court's ruling.

But the Identity Theft Resource Center argues that immigrants who use SSNs to get employment often end up putting the numbers to other uses: obtaining credit cards or car loans that can ultimately be blended in with the victim's credit, sometimes with disastrous results. The center took particular exception to the Colorado ruling.

"This is a dangerous precedent that has now been established and which could permit abuses of the system designed to protect innocent bystanders from fraud," the center said in a statement. "The Colorado State Supreme Court has implied it is permissible to use an SSN that was not issued to an individual to establish new lines of credit."

The courts' logic
The U.S. Supreme Court decision was unanimous. In it, the justices found that an immigrant using an unknown person's SSN to obtain work authorization did not "knowingly" use information that belonged to another person, as required by the statute.

The suspect in the case, Ignacio Flores-Figueroa, presented a Social Security card with his name but a false SSN -- the number turned out to belong to a minor -- so he could work at steel plant in East Moline, Ill. He was convicted of immigration offenses and aggravated identity theft and given a 75-month jail sentence, including a two-year enhancement for the federal ID theft charge. His success in the Supreme Court reduced his sentence by 24 months. He is still subject to deportation when he finishes serving his time.

Because Flores-Figueroa did not know if the number was real or manufactured, he did not know the number belonged to another person, so could not knowingly have committed identity theft, the court found.(PDF)

"(The suspect) claimed that the government could not prove that he knew that the numbers on the counterfeit documents were numbers assigned to other people," the court wrote. "The question is whether the statute requires the government to show that the defendant knew that the 'means of identification' he or she unlawfully transferred, possessed, or used, in fact, belonged to 'another person.' We conclude that it does."

Frank, the advocate for victims of ID theft, finds that logic flawed.

"They're saying ... he didn't have the intent to steal someone's identity because he didn't know if it was or wasn't someone's number," she said.  "But even if you make up a 9-digit number you should have reason to know might be someone else's number."

Bought car with fake SSN
In the more recent Colorado case, Felix Montes-Rodriguez applied for a car loan at a dealership using his real name, date of birth and employer, but someone else's Social Security number. He had also used the number to obtain employment.  Apparently, Montes-Rodriguez had every intention of paying the loan himself – in other words, he was not intending to steal the car -- but needed the number in order to obtain credit.  Lower courts found him guilty of the state's criminal impersonation law, but in a split decision, the state's Supreme Court used similar logic to the U.S. Supreme Court in overturning his conviction.

"In the face of so much accurate identifying information, we cannot conclude that Montes-Rodriguez pretended to be another person in his loan application simply because he supplied a false Social Security number," the justices wrote. "Hence, we conclude that Montes-Rodriguez did not assume a false identity."

In a fine parsing of language (PDF), the justices also said that SSNs are not a legal requirement for obtaining a loan -- even though they are required by banks -- and therefore using one in a loan application doesn't represent an illegal act.

The dissenting judges were colorful in their objection.

"I not only believe the majority misconstrues the criminal impersonation statute and reaches the wrong result in this case; but by slicing, dicing, parsing, distinguishing and generally over-analyzing (over the course of some 30 paragraphs) one short and relatively self-explanatory phrase, the majority manages to exclude from the statutory proscription conduct lying at its very heart," wrote Justice Nathan Coats, on behalf of the minority.

It is unclear how common SSN-only ID theft is, but the issue is one of many byproducts of the millions of undocumented workers at U.S. companies.  Employers are required to obtain right-to-work documents from new hires, including evidence of a valid Social Security number. But illegal aliens commonly buy or copy the numbers, which are rarely checked for accuracy. That means they can work using fake or forged SSNs undetected for years.  In a typical year, some 7 million to 10 million workers pay taxes using names and numbers that don't match IRS and Social Security Agency data. Many of these are believed to be illegal immigrants, based on sample studies conducted by the Social Security Administration, but there is no additional published information.

(For more, read this prior story)

Frank says ID theft victims whose numbers are used by illegal immigrants have no way of discovering the compromise -- the information doesn't show up on credit reports or annual Social Security statements. But if immigrants miss a payment or fail to pay taxes, the rightful owner of the SSN often encounters trouble.

That's why she thinks court rulings that diminish punishments against those who use someone else's SSN could endanger victims.

"The SSN is still the keys to the kingdom," she said. "(The judges)  don't understand that using the SSN itself is tantamount to ID theft. For far too long, the courts and industry have not taken identity theft seriously and here is but another example."

Sherrilynn Palladino lives in a modest three-bedroom home with an affordable mortgage about a mile and a half from the ocean in Grover Beach, Calif. She's never missed a mortgage payment during the 10 years she's lived in the neighborhood. In fact, she says, she's never late on any bills. At 60, she'd like to retire, downsize and escape spiraling property taxes in the suburb about half-way between Los Angeles and San Francisco.

But she can't.  The house next door is empty. It's been vacant and in various states of disrepair for three years.

Palladino is a quiet victim of the housing market crash. Call her collateral damage. 

"I'm stuck," she said.  "I can't sell my house for what I paid for it with an empty eyesore next door.  I can't afford upkeep, maintenance, and property taxes.  And I can't retire until I downsize ... I don't know what to do. It's all just a mess and I feel like it's out of my control."

Palladino is one of an estimated 14 million homeowners in America who are now under water -- they owe more on their mortgage than the value of their homes.  She has the misfortune of living in California, where one in three mortgage holders are under water.  Things are even worse in other states: In Florida and Arizona, half of mortgaged homes are under water; In Nevada, the number is 70 percent.

While consumers facing foreclosure and banks facing bankruptcy dominate the economic headlines, millions of other Americans are suffering effects of the housing market collapse that, while subtler, are very real.  Homeowners who are under water often can't move to take advantage of new job opportunities, they can't refinance and take advantage of low mortgage rates, and they generally feel rotten about their prospects. 

Palladino, who is single, would sell her home if she could, move into a cheaper condo and trim her annual property tax bill of $4,700.  But the house next door means that's not in the cards.

"I didn't buy more house than I could afford. I did everything I'm supposed to," she said. "The mortgage is nothing.  But it's the taxes that worry me."

What frustrates Palladino is that as far as she can tell, she's done everything right. Ten years ago, she owned a condo in San Francisco and sensed that the market had become overheated, so she sold and moved to a more modest neighborhood three hours south.

"I had watched the peak and the Internet bubble break and decided to get out of that," she said. "I made a killing selling that condo." 

She wanted to live at the beach, but instead took her hefty down payment and chose a modest single-story home that was a long walk away from the water. 

"I still get the sea air. I can still smell it," she said.

Following traditional financial advice, she bought as much home as she could afford without stretching too far -- a three-bedroom, two-bath home with a fireplace for $419,000. Even with a modest return, she figured she'd be able retire in five to 10 years.

Now, she stares at the overgrown weeds covering the yard of the empty house next door and wonders if she will ever be able to retire -- or if property taxes will slowly drain her life savings while she waits for a housing market rebound that may never come.

Trulia.com

The empty house in better days.

The empty house in better days. (from Trulia.com)

"Every year I wait for a chance to put my house on the market but no luck as that eyesore continues to exist," she said.

Things didn't always look so bleak. At one point, they seemed positively magical.  In April 2005, the house next door was sold to a family for $589,000.  Palladino counted her lucky stars.

"I should have jumped, but I wasn't ready," she said. "I remember thinking, 'Gosh, I can sell for a lot of money and use that for retirement, like you're supposed to.' "

But three years ago, the house next door went back on the market -- the couple that bought it was filing for divorce.  That started the roller coast that Palladino is still on today.  She watched the listing price fall, and fall, and fall, for nearly a year.  At some point, the family moved out, and two years ago, the home was pulled from the market. 

"That's when it went downhill. Then the weeds started to grow," she said. "I knew it was in foreclosure. At one point the weeds were five feet tall. Here I am trying to keep my place up and keep it looking nice, and what's the point?" 

For another year, the house sat vacant. Finally, this summer, a company came and painted the inside of the house. Even with that, the home remained empty through fall.

Then, at the end of September, it was listed for sale at $381,900 -- almost $40,000 less than Palladino paid for her nearly identical home next door in 2002. 

"No one knows they fixed up the inside from the outside," she said. "I watch cars come down the street to take a look. They see the outside and drive right back out."

That wasn't the end of the roller coaster.  The listing was removed in October, according to Zillow.com, suggesting a possible pending sale.  But something went wrong, and the home was relisted for the same price on Oct. 17. 

Why foreclosed homes take so long to sell
Banks aren't in the business of buying and selling homes, yet with an estimated 6 million foreclosures during the last two years, mortgage issuers have turned into giant real estate outlet malls.  All the big banks have real estate Web sites that seem like they belong at Zillow.com or MSN Real Estate.

(For a list, click here)

Because banks, by definition, would rather hold mortgage paper than porches, you'd think they would rush foreclosure sales through the pipeline in an effort to dump properties and turn them into cash.  That's the main defense of the recent robo-signing controversy: Banks have claimed that they need to be as efficient as possible with foreclosures so the market can absorb the bad news and eventually cleanse all the distressed properties. Prolonging the process hurts everyone, they said.

But that's not the whole truth.

Banks must also weigh the potential valuation disaster if they were to release all the foreclosed properties they own (known as REOs, or real estate owned) to the market simultaneously. So many empty homes would drive prices down drastically. That leaves banks in the position of throttling back their sales, trying to strike a balance between liquidating unwanted assets as soon as possible and widespread sales that devalue their own holdings.

That balance point is killing people like Palladino, who simply wants to move on with her life.

"I'm not getting any younger," she said. "I have a number of health issues too, like arthritis.  But for now I've got to keep working."

Rick Koester, the sales agent for the empty house next door, said he now works exclusively on bank-owned home sales. 

"I used to sell high-end homes, but this is all there is right now," he said.

He wouldn't discuss details of the home next door, citing ongoing sales negotiations, but said there are numerous reasons banks might hold onto foreclosed homes for what can seem like an eternity.

"There are a number of reasons banks do what they do.  They don't want to flood the market," he said.  "Iit's usually a nine-month process when they start foreclosure to when the home sells."

Accounting rules offer another possible explanation. In trying to explain why only 30 percent for foreclosed homes have reappeared on the open market in California, Sean O'Toole, CEO of research firm DataQuick, told the San Francisco Chronicle that banks are intentionally holding properties so they can exaggerate the value of those assets. In some cases, lost value doesn't have to be acknowledged until foreclosed sales close in their accounting disclosures.

"With banks in the stress they're in, I don't think they're anxious to show losses in assets on their balance sheets," he told the paper.

Bank owned homes that are in limbo are called "Shadow Inventory" in the real estate industry. It's unclear how many bank-owned homes are sitting empty, but not yet for sale, around the country, because banks don't necessarily have to report them on their balance sheets.  But attempts to quantify this Shadow Inventory have led to alarming conclusions. Earlier this month, Fitch Ratings said there are an estimated 7 million homes in this shadow inventory pipeline – and that it would take more than three years to sell all those bank-owned homes, Fitch said. As these trickle out onto the market, any fledgling recovery in home prices will be threatened, the ratings agency warned.

Palladino said she's read that news, and sees it in real life every day. Empty, bank-owned homes dot her neighborhood, and she worries that even if the house next door sells, her home value will be depressed for years by the others.

"I don't have a chance with all these other houses. I keep reading the recession is over. Oh really?" she said.

Even in the past week, Palladino's sense of being jerked around by the housing market hit both new lows, and new highs.  Koester said on Friday that the home next door has just been pulled from the market because of a pending sale.  It hasn't closed yet, and prior possible sales had fallen apart at the last moment, so he wouldn't talk about it. But the news would provide a ray of hope for Palladino.

But on the other side of the Ledger, on Friday she was laid off from her job as an administrative assistant.  She has savings to ease the blow, so she's hard at work looking for a new job already.

"I cannot believe that people walk away from their responsibilities, like house payments. Never, never would I do such a thing," she said.

The next time you call your bank to dispute a fraudulent credit card charge, get ready for some extra hassle. And you might already have noticed that more shippers are requiring signatures for delivery of merchandise, a major headache for those who aren't home during the daytime as the holiday shopping season arrives.

Both aggravations can be blamed, in part, on a rising number of consumers who are capitalizing on the prevalence of identity theft by using the "it wasn't me" technique to steal from banks and merchants. And merchants are fighting back against what banks call "friendly fraud."

A recent survey of merchants by online information purveyor Lexis Nexis found that 23 percent of fraud losses reported by large e-commerce sites come from friendly fraud, and one quarter of those sites said friendly fraud had increased. The study suggests that friendly fraud costs large Web sites as much as identity theft, though it's still only about half as big a problem as retail's largest nemesis, shoplifting.

The crime is easy to commit. Shoppers who want something for nothing simply call their bank after receiving whatever merchandise they ordered and pretend that an identity thief used their card. Then they ask that the purchases be removed from the account.

When a consumer claims fraud, a process known as a "chargeback" begins. Until recently, banks were eager to honor such requests, and often bragged that identity theft incidents were hassle-free for consumers. But an increase in friendly fraud has forced banks and merchants to take a closer look  at fraud claims, in some cases asking consumers to sign affidavits and have them notarized, before issuing credits.

Even after providing such evidence, merchants and consumers are still subject to a quasi-adjudication process called "re-presentment," with the consumers' bank as the ultimate arbiter. If the bank sides with the merchants, the consumer is forced to pay -- something that's become much more common lately, says fraud expert Julie Fergerson, who works for Ethoca.com, a fraud-prevention company.

"The thing that is interesting is that banks are getting much tougher on the consumers and e-commerce merchants are starting to win some of the time, when the consumer says 'I didn't do it,' said Fergerson, longtime executive at the Merchant Risk Council, an industry association designed to fight fraud. "It used to be an automatic, merchant loses every time.  Now it is much harder for the consumer."

That is evidenced by the "win" rates for merchants in the arbitrations, which are rising quickly, according to an annual Merchant Risk Council survey.  It found that consumers lose the argument 44 percent of the time now, up from 30 percent three years ago.

Fighting fraud with Facebook
Part of the reason: Many merchants now outsource the re-presentment to a company named RMS - Receivable Management Services. Darrel Hewson, vice president of business development for RMS, said merchants have gotten wise about gathering more evidence in anticipation of fraud claims.  One key piece of evidence: Those signed delivery slips from UPS or FedEx.

"We do look for delivery receipts and other validating data points," Hewson said. "We're always asking how to make sure we have data that can support the client's case."

You might be surprised how far the company will go: Hewson said there is now abundant friendly fraud in the travel industry, and one of his company's favorite evidence-gathering tools is Facebook.com.

"You might have Daryl take a trip and then initiate a chargeback and say, 'That wasn't me.' But then he posts on Facebook about what a great time he had. We look for that information, and if we find it we'll use it. … Criminals aren't always very smart."

Why is friendly fraud on the rise? Fergerson says the down economy is partly to blame. It's also perhaps the easiest form of stealing – and a lot less risky than its blood brother, shoplifting.   Hewson said the thieves almost never go to jail.

"Part of it is, it doesn't take long for consumers to educate themselves on it, and say, 'Gee that was easy,'" Hewson said.

The larger identity theft problem certainly bears some blame too, as friendly fraud is easily lost in a sea of other fraud. Until recently, merchants didn't put up much of a fight, focusing instead on the problem of traditional fraud.

"But merchants realize this is no longer just a cost of doing business, and they are getting resources focused on it," Hewson said.

Banks lose when merchants win
You might think that a consumer could only get away with committing friendly fraud once or twice before his or her bank caught wind of what was going on, but that's not true, said Hewson.  The number of parties involved in a chargeback, and their various economic incentives, mean banks often don't stop their own cardholders.

"The bank doesn't view that as their responsibility," Hewson said. "The different parties here are not necessarily pulling the same oar."  

When a chargeback occurs, it's like a thread is pulled out of a garment. It begins when a consumer calls the credit card bank -- called the issuing bank -- and claims fraud.  The issuing bank credits the consumer, then calls the merchant's bank -- the acquiring bank -- and says, "give me back my money while I investigate." The acquiring bank, sends the money back, and then reaches into the merchant's account and takes back the money.

If the merchant objects, a re-presentment "case" occurs, and the cardholder's  bank --- the issuing bank -- decides who is telling the truth.  If the consumer wins, the merchant is out the money. If the merchant wins, the consumer must pay. But if the consumer is a criminal and has vanished, the issuing bank is out the funds.  So the bank has an enormous financial incentive to decide in favor of the consumer. That's why friendly fraud artists can get away with it for so long.

"You'd think the bank would say,'This is the fourth time this the year, maybe something is wrong here. But many times, from bank's perspective, it's less costly," to side with the consumer. "The bank is trying to mitigate their cost, and it's no skin off their nose."

Banks also sell convenience and reassurance to their account holders, and want to ensure positive customer interactions when fraud arises -- particularly in light of the negative publicity generated around the government bailout.

That attitude is changing, however, as banks are discovering that friendly fraud repeat offenders usually have other financial problems and are a high default risk, Fergerson said.

"If a consumer has a history of saying, 'Hey I didn't buy that,' chances are they are in financial trouble," she said.

Meanwhile, a little pushback can go a long way, Hewson said. Many would-be criminals "rethink" their chargebacks after their bank requests an affidavit or other evidence that fraud has occurred.

"They often will call in and say, 'Oh yes, I remember that charge now,'" he said.

The cyber cold war between China and the U.S. just got a little chillier.  Twice this year, China demonstrated its ability to "substantially manipulate" the Internet, a congressional commission said in a report issued on Tuesday.  In one incident, traffic headed to 15 percent of the world's websites was redirected through Chinese servers for about 20 minutes.

The high-level hijacking included bits and bytes headed for the U.S. Senate, the Army, the Navy, the Marine Corps, the Air Force, the secretary of defense, NASA, and other government offices, along with commercial entities like Dell, Yahoo, Microsoft, and IBM, the report said.

Chinese officials disputed the findings. But several technology firms said they charted the hijacking in April.

In a prior incident in March, the Chinese censorship firewall was temporarily extended to block some U.S. users from visiting websites like Twitter and YouTube, the report said.

"Computer security researchers observed both incidents but were not able to say conclusively whether the actions were intentional," concluded the report, by the U.S.-China Economic And Security Review Commission. "Nonetheless, each incident demonstrates a capability that could possibly be used for malicious purposes."

The Internet, we are frequently reminded, is a shockingly fragile creation.  These incidents, both of which took advantage of well-known vulnerabilities, are  a wake-up call for U.S. authorities, who need to insist on security upgrades to protect U.S. interests, said Dmitri Alperovitch, a security researcher with McAfee. His firm supplied the U.S. government with a list of 53,000 websites that were hijacked for 18 minutes on April 8.

"This is a troubling development. It could be innocuous, and China is claiming it's  an accident, but this has a pretty wide-ranging set of implications," he said.  "That traffic could be eavesdropped upon."

The report comes near the end of a tumultuous year for China and the Internet. Beijing had a very public spat with Google early in the year, and the nation was ultimately accused of spying on Google employees. It was also accused of a sophisticated plot to use the Internet to spy on the Dalai Lama and other detractors.

The March incident involved a flaw in the way the Internet converts friendly website addresses -- like msnbc.com -- into their reference IP addresses – such as 128.206.11.1. The conversions occur through a system of networked computers called Domain Name Servers. A key tool in China's internal "Great Firewall" censorship tool is the rerouting of Web page requests through Domain Name Servers away from potentially subversive Web sites.  Requests for some Web sites are simply dropped; others are redirected to China-friendly sites.

But domain name conversion tables, when handled incorrectly, can spread themselves upstream on the Internet. In March, some domain servers around the world were "poisoned" with China's censored list, causing some users in Chile and the United State to be blocked from social networking sites for about a day.  The problem was readily fixed, and some researchers believe the cause might have been an honest mistake.

Bad 'route announcements'
But the April incident is far more mysterious, and consequently makes some security experts more nervous. It involved what are called "route announcements," which are made by telecom providers to the wider Internet.  Servers can advertise that they offer the best route for Internet traffic headed to specific destinations, and like obedient bits and bytes, the traffic automatically follows -- even if the advertisements are incorrect. That means an e-mail sent from Congress to the White House could be tricked into traveling through China, if a server were configured that way.

That's what happened in April, according to the report. A massive amount of Web traffic worked its way around the world through Chinese-controlled computers. According to McAfee's Alperovitch, only workers at China Telecom know why. But the most disturbing thing about the April incident, he said, is that almost no one noticed.  China Telecom absorbed the traffic and redistributed it to its destinations without so much as an Internet blip. 

While it's possible an honest mistake was to blame, it's easy to conjure up other possibilities.

"That they are able to take in that much traffic without breaking a sweat, I find that almost unimaginable," Alperovitch said.  "The capacity built into their networks must be astonishing. ... Things worked miraculously." 

The report speculated that the mammoth data slurp might have been committed to obfuscate a more targeted Web attack.  And an entity in possession of that much data might eventually be able to decrypt encrypted Web traffic -- in addition to the fishing expedition that a government agency could enjoy by simply searching all that data for valuable secrets.

"The spokesman of China Telecom Corp. Ltd. denied any hijack of Internet traffic," Chinese officials said in statement e-mailed Tuesday to the Reuters news service.

This is not the first time route announcements led to World Wide Web trouble.  In 2008, Pakistani censorship efforts of YouTube went awry, leading to a temporary blackout of the video service.  In 2004, Turkish servers accidentally told the world that all Web traffic should travel through its borders; widespread outages followed.

But this the first time such a large traffic rerouting was conducted without noticeable impact on Web traffic.

"The methods used during these activities are generally more sophisticated than techniques used in previous exploitations," the report concluded.

The Cold War was full of menacing military exercises and accidental airspace violations. A cyber cold war will naturally produced similar incidents. If there is a grey area between honest mistakes and outright cyber attack, these incidents probably fall right in the middle – if not a pre-planned testing of the waters, then certainly a happy accident with valuable results to be studied by would-be cyber-attackers.  Don't expect a cyber cold war thawing any time soon.

Debate about bloated government pensions benefits can get testy.  In New Jersey, a political science professor's discussion of the topic led to a surprise classroom visit from a local sheriff, who demanded – and received – an apology in front of the class.

As reported by the Trentonian newspaper, Professor Michael Glass of Mercer County Community College was discussing pension "double dipping" with students in February and brought up "retired" Mercer County Sherriff Kevin Larkin's dual-income status as an example.  Larkin filed the paperwork to officially retire in 2009 and began collecting his $85,000 pension.  But he never stopped working, instead using a well-known loophole to keep earning his full-time salary of $129,000 on top of his pension.

A student who knew Larkin texted the sheriff, who drove to the campus, knocked on the classroom door and asked to speak with Glass in the hallway.  A few minutes later, with Larkin at his side, Glass returned to the class and apologized.

Government pensions seem to bring out the worst in people, and they are bringing out the worst in state budgets.

Last week, we looked at super-sized pensions as the tip of a debt iceberg that might cause dozens of U.S. states to face default or bankruptcy in the decade ahead.

The abuses are striking. In Illinois, disgraced former Gov. Rod Blagojevich managed to hand out an amazing pension gift in the short time between his indictment and his removal from office.  He appointed Rep. Kurt Granberg, who was pulling down an $86,000-a-year salary as a legislator, to head the Department of Natural Resource, a post that paid $133,000 a year.  Granberg held the job for just 19 days, but because Illinois law bases pension payments on final salary, the appointment resulted in quite a bounty. In the end, Granberg walked away with a $112,000-annual pension -- $40,000 more than he would have received -- thanks to the brief job bump.

But no state does pension abuse like New Jersey, and no state is facing financial ruin from that abuse sooner than the Garden State. The state's unfunded pension debt per capita is the largest in the nation, and its pension fund is on target to be the first in the nation to run dry, in 2018.

A few more amazing statistics about the state's gloomy future:

*In 2008-09, New Jersey paid 240,000 retirees about $7 billion in pensions; when free health care and other perks are added in, the cost rose to nearly $11 billion.

*Because pension reform is in the air, state workers are rushing to retire. More than 16,000 have given notice in the first three quarters of this year. New Jersey owes them about $638 million. Included in that group are 233 retirees who will earn more than $100,000 each year in pension payments, including a former community college president who will earn $195,000.

*New Jersey hasn't paid anything into its pension fund in three budget cycles, essentially raiding retirees' money to plug tax revenue holes instead -- and shrinking the time before default. Currently, New Jersey owes its pension funds $45 billion, far more than its annual tax receipts. That's about $5,000 for every man, woman and child in the state. Meanwhile, when promised pension payments for the future are calculated, New Jersey is short $130 billion, or about $44,000 for every state household.

With red ink like that, you might wonder how the state could afford to grant this year's top pension-getter, Dr. A. Zachary Yamba, $195,000 per year for life. Yamba, 72, just retired from a 30-year run as head of Essex County College in Newark, the state's largest city.

At least Yamba seems destined to actually retire.  Another member of the six-figure club, Keansburg, N.J.,  Police Chief Raymond O'Hare, had barely clipped on his retirement watch when he accepted a job as the Jersey shore town's borough manager.  He'll be collecting a pension of $121,000 while simultaneously taking home a salary of $120,000.

In some states, that's called double-dipping.  In New Jersey, it's par for the course. One former county official managed to string together eight part-time jobs to earn himself a $150,000 pension.

The tale of former Newark Mayor Sharpe James, who this year completed a 27-month prison sentence for federal corruption charges, strings together many of these themes.  According to the Newark Star-Ledger, he stockpiled a $124,000 annual pension from the city of Newark as well as a nearly $1 million 401(k) account during his prior career as a teacher at the aforementioned Essex County College.  Before he was convicted, he was also earning a $150,000 annual salary as head of an urban studies institute at the college and a $50,000 annual salary as a state senator. That legislative job earned him credits for an additional $12,000 annual state pension.

There are nearly as many ways to game the system as there are retired workers in New Jersey; far too many to digest in one sitting. So as a guide, msnbc.com enlisted the help of New Jersey benefits expert Peter Tom, who has been consulting with municipalities for 30 years.  He identified five typical pension padding practices. We'll explore each one through examples, as a way of explaining the larger pension picture.

"(Pension abusers) prey on the lack of knowledge of the system that the average person has, in understanding how the pension system blows its money," Tom said. "Government officials pretty much rely on the fact that you don't know how it's done."

1. Back-ending or "padding"
It's easy to abuse the formula for calculating the lifetime annual payout.  Workers and political friends simply make sure that an employee's final-year salary is a doozy – like Blago's buddy. As you might expect, New Jersey is rife with back-ending.

A government-appointed panel studying state pensions in 2005 found this egregious example: An unidentified employee spent 24 year working in public service earning less than $10,000, then one year as a prosecutor earning $141,000 -- enhancing his pension from $3,600 to $70,000 annually.

Back-ending rules have been tightened slightly since then, but they are still vulnerable to gamesmanship. In fact, it's common, Tom said, for elected officials to reward a losing candidate with a highly compensated public job.  That's one reason local politicos are so eager to keep those $8,000-a-year city council jobs; they both pad future benefits calculations and often lead to lucrative post-politics jobs.

The key is to grab a well-paid city job right before retirement. Tom knows a case of a city councilman who earned $8,000 annually for 12 years, then jumped into a city job earning $91,000.  As long as he stays in the new position for three years, his pension will now be based on the higher salary -- and he will earn roughly 10 times the pension he would have received as a retired councilman.

Ron Dobies served as mayor of charming, picturesque Middlesex Borough for 26 years, earning a token salary.  Upon retirement, he was appointed borough administrator at a salary of $85,000. After three years, he was removed from office in 2009, and he's now entitled to a $46,000 pension.

One typical technique for back-ending is common for uniformed officers; they pad their end-of-career salaries with overtime work.

Apart from the outrage factor, Tom said, back-ending causes major problems for the pension system from an actuarial standpoint.

"People aren't paying into the system at the rate they are getting money out in those early years," he said. "Pensioners are never asked to make up the difference."

 2. Tacking, as in "tacking on more money."
"Tacking" is the process of stringing together multiple part-time government jobs to earn a full-time salary.  In New Jersey's small towns, it's common for local governments to hire part-time administrative workers, such as city attorneys -- and it's common for them to work for several municipalities.

But eight jobs at once?

That's what former Ocean County official Damian Murray pulled off. In 2009, he presided over court in eight towns, earning more than $300,000. Having also previously served as a member of the library commission and an elected freeholder, he has built a pension credit of more than $150,000 per year.

Of course, in a state where the majority of state legislators tack on additional government work – and one quarter hold dual elected offices, despite a law forbidding that – tacking stories shouldn't be surprising. State Sen. Nicholas Sacco is among the state's highest-paid multiple-job holders, simultaneously serving in the legislature, as mayor of North Bergen and as assistant schools superintendent in the town. His pension will one day reflect credits earned at all three jobs.

A 2005 study by New Jersey's Division of Pensions and Benefits found that 5,000 state workers were collecting multiple paychecks.  Eclipsing Murray, the agency found that Judge Jere Powell held 11 positions and earned $171,000 that year.

This is one pension loophole that apparently has been closed, Tom said, by a law signed earlier this year by Gov. Chris Christie.  Now, most employees must work 35 hours per week to get credits in the pension system.

"I do want to give credit to the present administration for addressing some of these things," Tom said.  "But even though this loophole has been addressed, the damage has been done for people already in the system."  The new rule only applies to new government workers, meaning it won't really impact the solvency of the pension system for 20 years or so.

3. Double-dipping
Strictly speaking, double-dipping involves collecting both a government salary and a pension simultaneously.  In general, New Jersey prohibits workers from retiring and collecting a pension while also collecting a salary for continuing to do their old job – but there are endless loopholes.

 Double-dipping is a common practice for government workers around the country. Defenders of the practice argue that the workers have earned their pension and are entitled to work during retirement if they choose.

The elected county sheriffs in New Jersey provide an obvious example of double-dipping.  In 2009, nine of the 63 office holders had retired and then remained in their posts, allowing them to collect six-figure salaries and pensions for the exact same job. Among them was  Larkin, the sheriff who demanded an apology from the political science professor.  Larkin, who resigned in October, did not return requests for comment.

Twelve-term Union County Sheriff Ralph Froelick retired in 1999. But he's held the sheriff's job ever since, earning $140,000 last year -- along with an $85,000 pension.

Tom said he thinks that's an unintended loophole.

 "I don't care if people retire and get a new job. They are entitled to do that," he said. "But the key thing here is you are coming back to same job.  If's the case, then they shouldn't be able to retire."

4. An officer and a civilian
Most uniformed jobs do not allow the blatant pension double-dipping that occurs in sheriff's offices. But there's a simple workaround -- retire and be rehired as a civilian serving essentially the same function. That's what Phoenix police chief/public safety manager Jack Harris did three years ago, attracting nationwide attention after a lawsuit was filed by conservative interest group Judicial Watch. The lawsuit claims the public safety manager's job is manufactured expressly to circumvent pension rules.

That happens in New Jersey, too.

On May 31, 1998, Dennis Keenan retired from his job as fire chief of Trenton, the state's capital. The next day, as  he began collecting his six-figure pension, he was appointed to the job of Trenton public safety director. That job was soon abolished by referendum, on July 12, 1999, but Keenan wasn't done.  Instead, he was appointed "fire director." By 2002, Keenan found himself as a lightning rod for such thinly veiled officer-civilian transitions, and the state's pension board began efforts to cut his benefits and force him to return already-paid pension funds. After a five-year battle, an appeals court forced Keenan to retire in 2007. But it also decided Keenan didn't have to repay the $450,000 he had already collected.

5. "Bridge jobs" and other part-time gigs
Many factors go into calculating the value of a retiree's pension, from past military service to the number of unused sick days and holidays. But the most critical component is years of service. That's where "bridge jobs" come in.  A state worker with 12 years of service who loses his job risks a critical break in years of service unless he finds one quickly -- but even a part-time $7,500-per-year job can keep the streak alive.  That's why state legislative offices are crawling with nearly $7,500-per-year consultants. And that's why former political office holders and appointees swarm around New Jersey's hundreds of part-time commission and advisory panel jobs, despite their often paltry salaries.

Here's one example: Jamie Fox, chief of staff for disgraced former Gov. James McGreevey, earned $11,000 as a member of the state's Local Finance Board – McGreevey appointed him to the slot just before he resigned in 2004. That allowed Fox to continue his valuable health care benefits and to earn credits for a pension that will be based on his $141,000 salary as McGreevey's top aide. Fox now works as a lobbyist and earned $513,000 last year, according to the New Jersey Record newspaper. 

The state's new pension law requiring minimum weekly hours also aims to beat back the bridge job problem, Tom said.

But here's a variation on the bridge job concept involving school districts. Superintendents are not allowed to retire, collect a pension and take a new job as a superintendent somewhere else.  But there is a glaring exception: Pension rules allow retired schools chiefs to take temporary jobs as "Interim superintendents," for up to 18 months, earning up to $800 per day.  After a year and a half, they have to find another temporary home, but lately that's been easy, said Tom – districts seem to like hiring temporary replacements. There's now a small army of interim superintendents.

Logjam unfair to state workers
This form of double-dipping inspires the usual ire,  but Tom said cities and government workers should appreciate that there's even a deeper cost to these bad pension habits: They create logjams that hurt younger workers.

"It stifles people trying to move up the ladder," he said.  "These practices don't allow others to move up because it keeps these people around, lets them hang on and hang on." From school districts to local police and fire departments, to municipal offices, lingering executives have a chain reaction on promotions – police chiefs don't leave, so assistant police chiefs don't get promoted, so there are never any open detective or lieutenant slots, and so on.

While pension abuse discussions often inspire vitriol from government workers, who fear attacks on their benefits, Tom said they should be outraged, too. "The rank and file workers are not the issue," he said. "They are the ones who are paying for all this abuse."

Sadly, cutting pension abuses won't fix the problems.  Despite the seeming endless stories of oversized pensions, the average pension paid to a New Jersey worker who retired this year is a modest $39,000.  When considering all current retired workers, the average pension is $26,000.  So cutting all six-figure pensions in the state wouldn't make a noticeable dent in New Jersey's whopping pension debt. Still, Tom said, it's important to attack the misbehavior.

"The issue with abuses is really a matter of unfairness," he said. "We want the pension system to be fair.  But if you want to make it the system solvent, you will have to make other changes."

In New York, a 44-year-old firefighter retires with a $101,000 a year pension, for life.  Near Chicago, a parks commissioner quits and begins collecting a $166,000 pension – a sum sweetened by $50,000 thanks to a one-time retirement year windfall of $270,000. And in California, a former city manager pulls down $500,000 in retirement checks every year.

As outrageous as those sunset stipends may seem, they are merely the most visible piece of what critics of generous government pensions say is a ticking time bomb of debt that is threatening to bankrupt a number of states by the end of the decade.

While the federal debt of $13.7 trillion raises issues of devalued currency, higher borrowing costs for Washington, D.C., and loss of international bargaining power, state debt – much of it driven by exploding pension costs – poses a more immediate risk to the U.S. economy, according to many experts.

Wall Street analyst Meredith Whitney correctly predicted the need for a government bailout of banks three years ago, so people listened in September when she forecast who will be next to beg for a federal bailout: States like California, New Jersey and Ohio. State and local governments have effectively run up huge credit card bills, and soon won't even be able to make the minimum payments on that debt.  What happens then?  Middle America, Whitney predicted in a report called "Tragedy of the Commons," might revolt at the idea at bailing out coastal states for years of mismanagement and overspending. 

Crushing debts racked up by these and other states are obvious almost every budget year, when state government shutdowns are threatened and tax increases loom.  But annual budget woes are a drop in the bucket compared to long-term obligations facing these states – particularly their promises to supply pensions and health care to millions of retired workers. Pension talk might not sound sexy, but it should: U.S. states already are short $1 trillion they should have set aside to pay retired workers, according to the Pew Center on the States. That hole could very well drive states to bankruptcy or federal bailout.

As documented in our continuing series on supersized government worker pay, granting supersized pensions seems irresponsible in light of this looming fiscal catastrophe. Yet, in California alone, nearly 10,000 retirees will get pension checks totaling at least $100,000 this year.

The economic struggles of the past decade lit the fuse for the pension fund time bomb. In 2000, half of the 50 states had enough money socked away to cover future pension costs, according to Pew.  By 2008, only four states -- Florida, New York, Washington and Wisconsin -- could make that claim. The other 46 are potentially on the road to insolvency.

Joshua Rauh

Joshua Rauh, associate professor of finance at at Northwestern University, estimates that 20 states will run out of pension money by 2025.

The pension doomsday clocks in Illinois and New Jersey will strike even sooner, in 2018, he said.

What happens then?  In New Jersey, for example, the state is obligated to pay pensions out of the general fund when the pension fund runs dry. In 2018, the state will owe $14 billion in pension payouts, or one-third of the state's annual tax receipts. To put that in perspective, to plug a budget hole like that this year, the state would have to cut all education spending. That bears repeating: It would have to eliminate spending on every elementary school, high school and college from its budget.

That's why stories of $195,000 pensions, rampant double-dipping, workers collecting pensions on seven, eight or even nine government jobs, and other excesses seem so absurd.

And pension gamesmanship is routine around the country. For example, pension payments are often based on the employee's salary in the final year on the job, or final three years.  That formula is easily abused, a process sometimes called "back-ending."  A pension commission in New Jersey found one worker spent 24 years in public service earning less than $10,000, then one year as a prosecutor earning $141,000. That boosted his pension from $3,600 to $70,000 annually. The employee wasn't named.

"There's probably as many variations as you can imagine," said Jack Dean, who runs the PensionTsunami.com website. "Just when I think that I've heard something amazing, I'll hear something more amazing.  It goes on everywhere across the country. It's human nature; if you can figure out a way to inflate your pension, you are going to do it. … People who make a career of it are making out like bandits."

Another common pension abuse is "double-dipping" – a practice in which employees retire and start collecting their pension, then are rehired to perform their old job at their old salary. It's a common practice for government workers around the country, despite many rules forbidding it.  Workers often argue that they have earned their pension and their right to retire, and if they decide to work during retirement, they're entitled.  But the logic there is deeply flawed, said Dean.

"Pensions were designed to make sure government workers were allowed to grow old with dignity, not to make them rich," he said.

The outrage, and the actuarial problem
In this series on super-sized government pay, we've already met Phoenix police chief/public safety manager Jack Harris, who's become the nation's poster child for "double-dipping."  He retired as chief in 2007 and began collecting a $90,000 pension. Two weeks later, he was hired for essentially the same job, retitled "public safety manager," and granted a salary of $193,000. Harris attracted nationwide attention after a lawsuit was filed by conservative interest group Judicial Watch. The lawsuit claims the public safety manager's job was manufactured expressly to circumvent both pension rules and a state law aimed at curbing the practice.

(Read 20 Government workers with super-sized pay here.)

Peter Tom is a municipal compensation specialist who's worked in New Jersey's complicated government worker environment for three decades.  New Jersey even has rules designed to enable double-dippers, he said. Yet, he's seen all manner of pension-stuffing through the years.

"This would not be allowed in the private sector because pension committees are third party administrators who have fiduciary responsibilities," Tom said. 

While the outrage factor on six-figure pensions and lucrative loopholes is high, Tom also points to a more practical, actuarial problem: Pension recipients aren't paying their fair share, creating unfunded liabilities. For example, he said, a worker who pays 5 percent of a $10,000 salary into the system for 24 years, then 5 percent of a $140,000 salary for one year, doesn't cover the costs of a $70,000 pension.

"These loopholes create unfunded liabilities that have helped damage the pension pool."," he said. "Pensioners are never asked to make up the difference."

A Ponzi scheme?
In truth, pension systems rely on what might be considered an accounting trick, not unlike the trick which keeps the Social Security system afloat for now.  While state workers contribute payments to the system – typically about 5 percent of their salary -- and those payments are matched by government employers --  about 10 percent -- those payments scarcely cover the eventual payouts. 

"You can never pay enough to pay for your retirement," Tom said.

In fact, "defined benefit" pension plans make no direct connection between the worker's contributions and the benefits enjoyed later.  Pension systems hope for large investment gains during a worker's career – in many states the calculations project an annual return of around 8 percent, a fantasy -- but really rely on the payments of current workers to fund payouts to retired workers.

Just as pensions are a bit of an accounting trick (or a Ponzi scheme, some might argue), pension obligations do not appear on state balance sheets as debts.  If they did – if states actually had to write down what they owe retirees going forward, and assume a modest return on investments -- the unfunded portion of the payments could be as high as $4.3 trillion, said Rauh, the Northwestern professor.  That's nearly a third of the federal debt, which currently stands at $13.7 trillion. The federal government's massive debt steals headlines, vaults politicians to office and has its own Times Square clock, but at least Washington, D.C., can print money.  Meanwhile, states are staring at a black mammoth black hole with seemingly no way to dig out.

While the contribution formulas have systematic flaws, their shortcomings are severely exacerbated by another simple math problem – life expectancy has jumped almost 10 years since 1960.

"Unions managed to lower or reduce the retirement age while increasing benefits in a period of history where people are living longer," said Dean, the PensionTsunami.com webmaster. "So you begin seeing what the problem is."

Dean's website maintains a $100,000 club roster, listing pensioners who enjoy six-figure annual payouts. But life expectancy is forcing him to consider new list: the $1 million club, for retirees who will collect seven-figure pensions during their lifetime.

"We have a police chief who will pull in $5 million in California (before he dies)," he said.

Defined contribution to the rescue?
Most pension reformers are calling for state governments to switch to a defined contribution system, similar to 401(k) plans many workers have.  That would mean workers would only get what they put into the system -- combined with any employer cash contributions and supplemented by investment gains -- when they retire. 

But while that is fiscally responsible from the government's point of view, a defined contribution plan is a meager replacement for a defined benefit plan. That's why unions are putting up quite a fight against pension reform.

Here's a simple rule-of-thumb comparison. 

A 30-year government worker with a final salary of $80,000 could expect an annual pension of roughly $55,000, or about $4,600 per month for life, under the current scheme. 

To earn that kind of guaranteed monthly income, a 401(k) saver would need $1 million in their retirement account, assuming $100,000 in savings can generate $400 in monthly income.

While it's not impossible to grow a 401(k) to those lofty levels, it is rare.  In fact, 50 percent of Americans who have 401(k) accounts have less than $35,000 in them. Contrast that with our 30-year government workers who can all expect predictable pension checks.

So expect a furious battle as state governments attempt to reign in pension costs.

It's about power
But in the end, pensions are about power. Elected officials from local and state governments maintain power by doling out favors and perks, and there is no perk like a pension.

Next week, Tom will be our guide as we delve more deeply into particularly egregious forms of pension loopholes, such as a county sheriff who retired in 1999 but still holds his six-figure-salaried office, the judge with 11 state jobs and the convicted mayor with the $125,000 pension and multiple other sources of state income. 

We'll also find out just how emotional the tale of government pensions can be, as we meet a New Jersey sheriff who stormed a college classroom and forced a professor to apologize for calling him a double dipper in class.

"This problem is really the result of years of the public just not paying close attention, especially over the last decade," said Dean, of PensionTsunami.com.  "So now, this is a story that is going to keep on going and going."

Have you been paying attention? Are there stories in your state of pension abuse? Share them below, or tell me privately at BobSullivan@feedback.msnbc.com

Text message capture supplied by Cambridge Credit Counseling.

"They've never lost a case," Dee told me repeatedly, even as I expressed my incredulity. She also asked several times if I had more than $10,000 in debt.  "Of course, they don't work pro bono ... but you do qualify for help."

I met Dee because she sent out text messages all around the country recently, asking people to call about a survey.  When I called, she reiterated that she was conducting a survey. But the only questions she asked involved whether or not I wanted to be connected to a debt expert.

As new federal rules kick in severely limiting the way debt settlement companies operate, experts have predicted the industry might be simply pushed further underground.  Dee's unsolicited text messages might be evidence of that.

"We're following up to see if you qualify for a program to get help," Dee said to me. "We work with an advocacy group that only deals with individuals who have debts over $10,000."

After asking me a few questions about what kind of debt I hold, she assured me that the advocacy company was not a debt consolidation company.

"It's a pretty simple process," she said. "They trigger your consumer rights and go after banks" that have taken advantage of consumers.  She then said clients' debts could be reduced by as much as 90 percent.

How did Dee decide who to survey?

"We purchase lists," she said.  "We sent texts across the U.S." 

What's the name of the advocacy company?

"It's called Consumer Advocates," she said.  She then directed me to their Web site at USAConsumerAdvocates.com.

A call placed to the contact phone number listed on the site was answered by an operator, who connected a reporter to a woman who said her name was Tiffany. She denied the company was using unsolicited text messages to advertise, but didn't deny that texts were sent.

"They are taking surveys and referring people to companies," Tiffany said of the survey-taker, CA Surveys. "But if you aren't interested then I think we're done here,"  and then she hung up.

The firm didn't respond to an e-mail request for further comment.

Leads can be worth $300
The use of third-party marketing firms is standard for many debt settlement companies, said Andy Faria, who runs Massachusetts-based Northeast Settlement Group, also a debt settlement company. The payoff can be big -- $200 or even $300 per lead, he said.

That's one reason debt settlement firms -- until recently recognized by ubiquitous 50-cents-on-the-debt-dollar advertisements -- have traditionally charged high up-front fees.  Faria is supportive of new Federal Trade Commission rules that restrict ad claims and nearly eliminate upfront fees.

"Marketing is where it all starts," he said. "Obviously when you are paying $200 a lead you have to put on the hard sell. That's where a lot of these companies have gone wrong."

Faria said he hadn't yet seen text message spam from a debt settlement firm, but he'd heard about their use.

"I've seen it all. Marketing companies will come up with anything to get phones to ring," he said.  "That is cheap. They can send out texts for one or two cents a message."

It's possible that debt settlement firms will turn en masse to sending unsolicited cell phone text messages to potential clients in an irritating attempt to circumvent new federal rules limiting their marketing outlets, said Chris Viale, CEO of Massachusetts-based Cambridge Credit Counseling.

Viale's firm provided msnbc.com with the initial text message from Dee.  A public relations representative of the firm received it, along with two other related texts last week, he said. Viale said he'd received a separate unwanted text message during this past weekend. By calling the text a survey, he suspects the firm hopes to create an exception from the new FTC rules.

Those rules, which took effect Oct. 27, apply principally to broadcast advertisements and telephone solicitations, and severely limit the claims debt settlement companies can make, along with most up-front fees.

Industry observer Steve Rhode said he hadn't seen unsolicited text messages yet, but he had heard rumors about the technique, and called it "only a matter of time." He's collecting other ads he called misleading at his Web site getoutofdebt.org.

Unwanted text messages are more than just a nuisance -- they can cost recipients some money. Consumers who don't have an all-you-can-text plan generally pay 20 cents each.

Court: Sender might have to pay
U.S. courts have yet to definitively decide if unwanted text messages are akin to spam or unwanted phone calls – and what, if any, penalties can be imposed on senders. But a ruling last year by a federal appeals court in San Francisco said that Simon & Shuster could be held liable for violating the Telephone Consumer Protection Act after it sent out text messages advertising a Stephen King novel. The court ruled that because automated tools were used to generate the messages, the bookseller violated federal law -- allowing a consumer to go ahead with a $90 million class action lawsuit.

The risk that unwanted texts could lead to legal action is just another reason Faria thinks his industry needs to quickly clean up its act, or else face potential business-killing legislation from Congress.

"It's very important that companies recognize these new regulations and start getting behind them," he said. "If not, there's going to be fee caps ... that absolutely have the potential to shut this industry down."

Just days after U.S. voters threw overboard one of their top privacy advocates in Congress, the European Commission announced Thursday that it will push for creation of a Web users' "right to be forgotten."

The commission, which is the executive body of the European Union, plans to update 15-year-old laws governing collection and use of consumer information to reflect the age of Google and Facebook. Changes could come early next year.

"Strengthening individuals' rights so that the collection and use of personal data is limited to the minimum necessary," the commission said in a statement.  "Individuals should also be clearly informed in a transparent way on how, why, by whom, and for how long their data is collected and used. People should be able to give their informed consent to the processing of their personal data, for example when surfing online, and should have the 'right to be forgotten' when their data is no longer needed or they want their data to be deleted."

Word comes as U.S. privacy advocates digest news that Rep. Rick Boucher, D-Va., who last year introduced sweeping federal privacy legislation, lost his campaign for re-election on Tuesday night.

"I think that the demise of Boucher really is a setback to national privacy legislation," said U.S. privacy expert Larry Ponemon, head of The Ponemon Institute, which conducts privacy audits for U.S. firms.  "I don't see anyone else pursuing this agenda in the next few years."

Privacy laws in Europe have always been stronger than U.S. protections, as the right to personal information safety is explicitly recognized as a fundamental human right by the EU. Each EU member has a privacy commissioner or similar cabinet-level official who represents consumers' privacy rights. But the EU is in the process of revamping its rules, pledging to unveil an update to its 1995 Data Protection Directive by early next year. Thursday's statement invited comments from consumers and industry.

"The protection of personal data is a fundamental right," said Vice President Viviane Reding, EU Commissioner for Justice, Fundamental Rights and Citizenship. "To guarantee this right, we need clear and consistent data protection rules. We also need to bring our laws up to date with the challenges raised by new technologies and globalization."

(Read more about the EU proposal on msnbc.com)

A similar movement is afoot in the U.S., as privacy advocates have finally settled on a simple notion that makes sense: a "Do-Not-Track" list, that borrows its notion from the wildly popular "Do Not Call" list. Federal Trade Commission Chairman Jon Leibowitz recently made public comments saying the agency is "thinking about" the idea.  Meanwhile, Rep. Bobby Rush, D-Ill., plans to hold hearings soon about his privacy related "Best Practices Act," and has said he would consider adding a "Do Not Track" provision.

Of course, in both the EU and US efforts, the devil will be in the details.  But it's important that fuzzy notions about privacy are coalescing around easy-to-understand concepts like a right to be forgotten and a right to not be tracked.

George Bush, Barack Obama, Democratic wave, Republican tsunami. It doesn't matter who's in charge -- one problem has, so far, transcended them all: all those empty houses.  

The fragile U.S. economy will not recover until someone solves the issue of empty houses and their drag on everyone's financial stability. Right now, things aren't looking good. There may still be 10 million or so more foreclosures in the pipeline, on top of the 3 million from 2009 and another 3 million expected this year. There already are 19 million vacant homes in America, according to the U.S. Census Bureau. Nothing would more quickly kill a fledgling recovery and further decimate everyone's home values  than dumping another 10 million empty homes on the market.

Here's the problem: While the Obama plan to help at risk homeowners has been a disastrous mess, Republicans say they want to do even less.

The empty house problem impacts us all. Each foreclosure drains $4,000 in equity from neighboring homes, according to some estimates.  Empty neighborhoods create blight; empty houses kill the new home construction industry. And even if you aren't among the 10 million homeowners at risk of foreclosure -- that's one in five outstanding mortgages in the country --  odds are good that you are a responsible mortgage payer whose home is now "under water."

In California, 35 percent of homeowners are in that plight, owing more than their house is worth. In Florida and Arizona, half of all homeowners are drowning, and in Harry Reid's Nevada, fully 70 percent are under water.  Homeowners with negative equity are in serious financial handcuffs.  They often can't move to take a new job, because they can't afford to sell their homes. They can't borrow to help with other debt or to fix up their homes.  And they feel terrible, which puts them on the sidelines for any recovery that might be triggered by consumer spending.

When it comes to empty houses, we are all in this together. So why are we doing so little about it? And why would we even consider doing even less?

Even the most blindly loyal Obama supporters have to be disappointed with the president's feeble attempts to help homeowners at risk of foreclosure. After 18 months, the Home Affordable Modification Program (HAMP) has fallen about 90 percent short of its stated goal.  We were told it offered hope to 3 million or 4 million people. Instead, fewer than 500,000 homeowners have new, permanently lower mortgage payments. Meanwhile, more than that have been kicked out of the program,  having been drawn in by the prospect of lower mortgage payments, then later denied for non qualification, failure to make payments, or a host of other reasons. Worst yet, since the advent of HAMP, some 3 million people have been kicked out of their homes.

Instead of hope, most HAMP participations found Kafkaesque frustration. The litany of nightmares has been well-chronicled: lost paperwork, random denials, stall tactics, empty promises. Homeowners following bank instructions and making payments as instructed still received foreclosure notices. People who spent their last dollars making temporarily modified mortgage payments – instead of using that money for rent and to start a new life -- were kicked out of their homes anyway. 

(See my colleague John Schoen's reporting on this; or have a look at a Web site devoted to HAMP horror tales).

So nearing the end of 2010, the back of the baseball card on HAMP looks like this: Banks repossessed homes at a rate of 100,000 per month, while HAMP was helping 14,000 per month.  That's not helping.

'Cruel,' and 'false hope'
These tepid -- in some cases, counterproductive -- efforts to address the foreclosure problem are the single biggest failure of Obama's first two years in office, in my view. But don't take my word for it: Here's how the TARP inspector general described the program in an audit released last week:

"What Treasury deems a universal benefit, homeowners call 'cruel' and offering 'false hope,'" it said.  The report accused the Treasury Department of trying to "define failure as success." The report accuses Treasury of disregarding the "harm and suffering" the program has caused, and ignoring cases where participants "unnecessarily (deplete) dwindling savings in an ultimately futile effort" to obtain relief.

Naturally, Republicans have seized on the program's failure. As recently as last week, Rep. Darrel Issa, R-Calif., called for pulling the plug on HAMP.  Issa's words have serious weight: He will likely lead the House Oversight and Government Reform panel next year, giving him the power to launch an investigation of HAMP.

In a letter sent to Treasury in July, Issa argued forcefully for HAMP's demise.

"The massive government intervention is simply not working," he wrote. "HAMP is reaching only a tiny fraction of those homeowners whom the program was designed to help. … The evidence points to only one conclusion: The program should end immediately."

Hapless HOPE NOW
What does Issa say should replace it? Private efforts at modification. In fact, Issa said that HAMP "disrupted" modifications that banks would have completed on their own had the government not gotten in the way.

Let me summarize these two approaches to fixing the empty house problem: Dumb and dumber.

If you've watched television after 11 p.m. in America during the last two years, you know all you need to know about private home loan modification, thanks to nonstop late-night infomercials.  You might not remember that the old "leave it up to the private sector" plan has already been tried.

Back in 2007, the Bush administration attempted a voluntary modification program called the HOPE NOW Alliance, run by banks.  HOPE NOW essentially provided a toll-free hotline to help consumers contact their banks and plead for mercy.  HOPE NOW still exists, and the alliance still puts out press releases saying it's helped hundreds of thousands of at-risk homeowners.  Does anyone believe it's done enough? Your eyes, and all those "for sale" signs, should tell you otherwise.

It's hard to see how removing the government's assistance program could make things better. And Republicans can't directly kill the program, because they only control one body of Congress. The money for HAMP comes from the already-appropriated TARP/bailout funds. An aggressive investigation into HAMP's failures could, however, make things very uncomfortable for the administration.

'Best thing we've got
But many advocates for foreclosure assistance programs say they think Republican calls to torch government housing help are probably just saber-rattling.

"We've got a huge foreclosure crisis, and so far nothing we've done has turned the tide. But HAMP is the best thing we've got," said Alys Cohen, of the National Consumer Law Center.  She said the program's biggest problem is that banks aren't complying with its rules, and no one is punishing them for that.

 The Treasury Department also has failed to set benchmarks for success, she said.  "It needs to be fixed, not scrapped," Cohen said of HAMP. "... It would be a shame if people scrapped the problem and replaced it with nothing else to help 10 million people who need it."

Ira Rheingold, a public interest attorney with the National Association of Consumer Advocates, called HAMP "extremely disappointing," and said the program wasn't well designed. But he, too, said the program should be fixed instead of scuttled.

"There are a number of homeowners who can be helped, but I fear they will say this is a failure, let's shut this down," he said. "The GOP will wind up blaming the government, as opposed to going after the banks.  They will figure out a way to protect banks from their own incompetence."

The empty house problem is vexing because it is not monolithic.  One side might think the problem was created homeowners who overreached and deserve to lose their homes; the other side counters that corrupt banks tricked families into booby-trapped loans. In fact, the housing mess is all those things, and more. Lenders who used illegal tactics like "robosigning" foreclosure documents and greedy speculators who bought condos in South Florida hoping to flip them for profit also contributed to the mess. Ideally, Cohen said, someone would invent a "trick-o-meter" to figure out which homeowners deserved help, and which deserved market punishment.

"But no one has a trick-o-meter," she said.

The problem, said Rheingold, is that decisions on loan modification have been left to banks in every program designed so far. 

"There has to be a recognition that you cannot let the loan servicers be the ultimate decision-makers here," he said. "Right now people are wrongly denied all the time. We have to create a due process. "If there is anything we should have learned so far, it's that if we build anything where we are trusting the banks, we are idiots. That's a recipe for failure. Depending on banks to do the right thing instead of mandating they do the right thing is a recipe for failure."

Possible solutions
One controversial element of due process might be allowing bankruptcy judges to perform so-called "cramdowns," which reduce the principal balance on home loans. Right now, there is no legal process for reducing outstanding balances.  Banks have strongly opposed the idea, saying it would forever change the nature of home mortgage lending.

But less radical measures also could help, Rheingold said. Centrist Republican Sen. Olympia Snowe, R-Maine, proposed earlier this year a measure that would have created an Office of the Homeowner Advocate within the Treasury Department that would help consumers work their way through housing rescue plans.  Such an advocate is sorely needed, Rheingold said, and Snowe's support for the measures shows there is at least some Republican support for creative solutions.

And he said a new Housing and Urban Development test program designed to help unemployed homeowners facing foreclosure shows promise.  The program provides bridge loans and other aid for up to 24 months while homeowners search for work.

'What are we doing to save communities?'
Still, the empty house problem is mammoth. If 10 million families lose their homes,  that would represent roughly $2 trillion in home value, and roughly $1.8 trillion in outstanding mortgage balances.  No matter how you do it, that's a huge hole in the economy to fill.

Cohen said homeowner advocates aren't attached to Obama's HAMP program as the solution to that problem; they are chiefly worried that an ill-advised attempt to dismantle it and turn the problem over to market forces could be a final crushing blow to the housing market.

"The real question isn't HAMP. HAMP is a red herring," she said. "We have a foreclosure crisis. What are we going to do to help these people, save communities  and save the economy? That's really the issue, not 'Does HAMP work or not?' When the history books are written about our time I hope the narrative won't be that both parties sided with the banks."