Reflections

“Misunderstanding of the present grows fatally from ignorance of the past” -Marc Leopold Bloch

1962 – Cold War I

The end of Cold War I, widely viewed in the west as proof of the innate superiority of capitalism over communism, led some to believe that the disappearance of ideological antagonism between the United States and Russia, the Soviet Union’s successor, would yield “peace dividends.” With the issue settled and the consequent diminished probability of a nuclear war between the former foes, so the argument went, it seemed logical to assume that America’s defense budget would be demobilized from the war footing it had been on since World War II.

2014 – Cold War 2?

As we know, that has yet to happen. In 2013 U.S. defense-related expenditure was approximately $640 billion, exceeding China ($188B), Russia ($87B), Saudi Arabia ($67B), France ($61.2B), Britain ($57.9B), Germany ($48.8B), India ($47.4B), and South Korea ($33.9B) combined, and significantly more than the Congressional Budget’s Office 2014 projected deficit of $514B.

State-sponsored communism imploded because its fundamental tenet –perpetual self-sacrifice of the individual for the benefit of the state- is anathema to human nature. No doubt other species with highly structured and –it is duly noted- very successful societies might agree with it, but human beings are keenly aware of their mortality and short youth, and most yearn for the freedom and means to make their lives worth living while it matters. Except for the truly saintly, few willingly make vows of poverty or accept a perpetual state of subservience. No, capitalism did not defeat communism. Communism self destructed because it failed to deliver.

Accordingly, on the 100th anniversary of the beginning of World War I, with all its lessons the world has yet to heed, it seems in right order to review how capitalism has performed relative to the middle and working classes since that fateful night when East Berliners scaled and sat on the infamous wall. Scores of charts and data on the distribution of wealth and income indicate that the rich got richer and the poor poorer, that the trend continues unabated and that it is accelerating. At this rate, the day will come when there will be little or no difference between capitalism and communism with respect to the distribution of income and wealth.

Overwhelming wealth conveys near absolute power, and absolute power corrupts absolutely; worse, wealth tolerates no dissent because it exists only to perpetually replicate itself even though it exists in a finite world with a growing population. Clearly we can have either a plutocracy or a democracy, but we can’t have both. Unsurprisingly, many of today’s rivalries, intrigues and conspiracies coalesce around domination –though not necessarily outright ownership- of the world’s gas and oil reserves and the global financial system. Whoever succeeds in doing so will rule the world for the foreseeable future.

The rise of the global economy and global warming accelerated concurrently with the demise of institutionalized communism and its aftermath, and for the vast majority of people everywhere the result has been nothing less than catastrophic:

1) A wealth gap so wide, according to numbers compiled by Credit Suisse in its latest World Wealth report, that the top 1% control 46% of the world’s assets, and 86% of global wealth is owned by the richest 10%; in the U.S., the richest 1% own more than 35% of the country’s wealth, while the bottom 50% together share just 2.5%. In demographic terms, the 400 richest Americans are wealthier than the bottom 150 million Americans put together.
2) Global warming. There is an ongoing mass die out of land and marine species directly attributable to it, and no one knows what the consequences will be. The ocean, which absorbs about one-third of all human-caused carbon dioxide emissions at a rate of 300 tons per second, is now 30 percent more acidic than before the Industrial Revolution. This has harmed marine food webs with all the ripple effect that it entails.
3) Water. Rising demand and climate change will exacerbate water problems worldwide. By mid century the world’s population is expected to reach 9.6 billion. As a result, the demand for water is likely to increase by 55%, exacerbating the already very severe shortages. That may very well lead to wars, famine and other disasters.

Most politicians, economists and scientists agree that these issues are unsustainable, unacceptable and extremely dangerous, yet so far no one has outlined a specific, feasible plan to resolve all three simultaneously. Some suggest reforming the tax code, an understatement to say the least, as if that were the equivalent of restoring the millions of well-paying middle class jobs that were outsourced over the last forty years. Others choose to highlight the number of jobs created since the end of the Great Recession but fail to mention that:

Well in excess of 40% of them are low paying retail jobs.
Today’s autoworkers in the U.S. are paid about half of what their parents used to make.
The labor participation rate stands at just over 62%, the lowest ever.
The nation’s home ownership rate in the first quarter of 2014 fell to 64.8%, the lowest in 19 years.
The pace of rent increases over the past decade has been double the growth in incomes.
New construction of small, 2-bedroom single family homes for first-time buyers in non-wealthy areas is practically nonexistent.
The total debt of the federal government at the end of fiscal 2013 -including both the debt held by the public and the intragovernmental debt- was $16.72 trillion. The Congressional Budget Office estimates that by 2024, the total debt of the federal government will be $27.16 trillion—of which $20.95 trillion will be debt held by the public. In simple terms, over the long run deficits will rise to unsustainable levels relative to the economy.
Industry estimates of long-range energy demand suggest oil and natural gas will remain essential growing sources of energy in the coming decades despite international efforts to reduce greenhouse emissions. Natural gas, which emits roughly half the carbon dioxide as coal but which is roughly 75% methane, a far more potent greenhouse gas than carbon dioxide, is expected to grow faster than any other fuel type; therefore its chemical composition and growing demand, particularly in China and India, should result in higher net emissions of greenhouse gases.

The situation is too far gone for cosmetic, half-hearted tweaks. It calls for fundamental, drastic structural changes, which are in any case inevitable. The only question is whether our elected representatives can summon the willpower and courage to take meaningful action to achieve a soft landing. The alternative -doing nothing of consequence- borders on suicidal.

Plan A: The Andes

The Andes extend 7,000 kilometers (4,349 miles), from Venezuela to Chile.

Nowhere else on Earth is there another mountain range adjacent to the ocean and of this length and height.

The ocean’s close proximity to the Andes means solar powered plants could be built on or close to the shore to produce green hydrogen by electrolysis. Hydrogen, not water, would be pumped up to them. Some of the peaks exceed 20,000 feet.

There, hydrogen-burning power plants would be built.

The plants would use advanced hydrogen turbines that do not require fuel cells.

When hydrogen is burned, water vapor is produced. Instead of letting it dissipate, it would be condensed and stored.

Terraces would be carved below the hydrogen plants.

Each level would have hydroelectric turbines powered by the water produced by the hydrogen plants above them.

The combined electricity generated by all the hydro turbines driven by the same pressurized water (aquafacture) cascading down thousands of feet should greatly exceed the energy spent in the electrolysis process. A portion of the surplus electricity could be used to produce more hydrogen to fire up other arrays; surplus hydrogen would be exported to clients anywhere in the world. Theoretically, clients should be able to replicate the system at a site of their choosing, however they would still depend on a steady supply of imported hydrogen.

Plan A: Mexico

Mexico

While the U.S. meets all the requirements to build a vast aquafacture-based economic infrastructure, Mexico also has comparable but less capital-demanding features with which to implement Plan A.

The Gulf of California –wholly Mexican- eliminates the need to dig a canal, and its two sparsely populated coastlines have abundant sunlight the year round.

There are mountainous islands, and the peninsula proper, over 1,000 miles long, also has a steep mountain range in the middle.

But what makes Mexico a leading candidate to become a global hydrogen producer is the need to balance its trade deficit with China, to create millions of well-paying jobs, and to replace the revenue it will lose when its oil reserves are gone. According to statistics from Mexico’s Department of Economy, in 2012 it exported $5.7 billion and imported almost $57 billion from China, a ten-fold imbalance that even the Chinese seek to redress. Accordingly, in April 2013 Pemex signed its first long-term contract to ship 30,000 barrels of oil a day to Sinopec, China’s state oil company, and Mexico’s administration has indicated that it will soon introduce legislation to allow greater international investment in its oil sector, currently a state monopoly. This is implicit recognition of the fact that Mexico needs foreign capital and expertise to search for and develop new oil and gas fields. But, should Mexico realize that hydrogen from electrolysis -a virtually unlimited resource- could be of great interest to nations whose domestic energy and/or water supplies are insufficient to meet domestic demand, it may consider developing it in earnest. One advantage Mexico has in the decision-making process over the U.S. is that it does not suffer from the same degree of gridlock.

Since the existing topographic features require little or no modification, and should the energy sector be opened to foreign investors, China and Japan, among others, would likely consider investing in the fuel of the future.

Plan A: Iberia

Sunny Spain and Portugal, surrounded by water on three sides. What if it they could use their sunlight, seawater and gravity to produce green hydrogen and simultaneously generate more electricity than is consumed in the process? Furthermore, what if they could export a (theoretically) unlimited amount of electricity to the rest of Europe and green hydrogen to distant, virtually insatiable energy and water markets such as China and India?

What if the Canary Islands…

and the Balearic Islands

suddenly became world-class energy exporters? Would that diversify their economies, create jobs, and improve their standard of living? Would that be enough to merit an in-depth study?

Plan A: Argentina

Argentina

Santa Cruz is the country’s second-largest (94,187 square miles) and least densely populated (2.9 persons per square mile) province.

54 km (34 miles) SW of the port of San Julián lies the (2,900 sq km (1,119.7 sq mi) depression of the same name.

Within the depression lies the Laguna del Carbón, an endorheic salt lake 105 meters (344 ft) below sea level, the lowest point in the Western and Southern Hemispheres and the seventh lowest point on Earth.

Currently the depression has little or no use. Instead, it could be utilized to produce hydrogen by electrolysis of seawater. The first step would be to carve a sea-level canal from the coast to the depression. That would keep it full by gravity which would avoid pumping costs.

Plan A: The U.S.

The United States

To enlarge, click on any photo.

Open Pit Coal Mine 3 — The goal: eliminate the coal mine

Coal is extracted from the ground either at ground level by open pit mining, or by shaft mining. The world’s top producer and user of coal (and energy in general) is China, accounting for about half of global coal consumption.

Coal-fired electric power generation emits approximately 2,000 pounds of carbon dioxide (CO2) per megawatt-hour generated, almost double the CO2 released by natural gas-fired plants per megawatt-hour generated. Coal supplies about 70% of China’s total energy consumption, however the International Energy Agency (IEA) projects that it will fall to 59% by 2035 due to higher energy efficiencies and China’s goal to reduce carbon emissions per unit of GDP. However, absolute coal consumption is expected to double over this period due to the large growth in total energy consumption.

killer smog, and global warming. — Smog in Chinese city

Thick, off-the-scale smog routinely shrouds eastern China in winter, forcing airlines to cancel flights because of poor visibility and prompting the government to temporarily shut down factories and curtail fleets of government cars; streetlights and buildings all but disappear into the haze and pedestrians don face masks. But the problem is global: as of May 2013 worldwide levels of the chief greenhouse gas that causes global warming, carbon dioxide, reached 400 parts per million, an amount never before encountered by humans. The last time this happened was at least 2 million years (could be as much as 10 million years) ago, during the Pleistocene Era. When measurements of this gas were first taken in 1958, it was 315 ppm; currently, the concentration of CO2 is growing at about 2 parts per million per year, 100 times faster than at the end of the Ice Age. At that time it took 7,000 years for CO2 levels to rise by 80 parts per million. Now, because of burning fossil fuels, particularly coal and oil, levels have risen by the same amount in just 55 years. Natural gas, which is 75% methane, a far more potent greenhouse gas than carbon dioxide, also pollutes the air, albeit at a lower rate. Today the concentration of carbon dioxide is rising at 2 ppm per year. If the entire world were to switch to gas, the concentration of CO2 would still rise at approximately 1 ppm per year, and methane would increase as well.

The method: using modern technology and equipment, — Earth moving equipment

Today’s giant earth-moving machines would fit right into science fiction movies, a far cry from the equipment used when the Panama Canal was built. Almost any excavation project is possible if the required technological, political, human and financial resources are brought to bear.

A sea-level canal from the Pacific Ocean

There’s no question that this project would dwarf practically any engineering endeavor ever attempted: a trench at least 200 miles long, 3,400 feet deep, depending on the route, and 500 feet wide. The cost could well be in the hundreds of billions of dollars; the exact amount would have to be determined by a feasibility study. But it would have to be done only once, and it would pay for itself over time. In any event, not seeing this through is not an option given the gravity of our economic (few well-paying jobs for the working class) and environmental condition. Instead, it should be pursued with the same urgency and intensity as if our lives depend on it, because they do.

to fill Death Valley. — to Death Valley.

At 282 feet below sea level, the floor of Death Valley is the lowest, driest, and hottest location in North America, about 3,000 sq mi (7,800 sq kilometers). During the middle of the Pleistocene Era it was part of a succession of inland seas, collectively referred to as Lake Manly. There are four major mountain ranges between the Valley and the ocean, each one adding to an increasing rain shadow effect. As a result, the average annual precipitation is 1.58 inches (40 mm) and the typical summer daily evaporation rate 0.75 inches/day (1.9 cm/day. It is due to these characteristics that only a sea-level canal would constantly replenish the water that would be lost to evaporation and electrolysis without incurring constant pumping costs.

The idea of consuming large tracts of flat real estate with solar panels to generate electricity makes sense only if we persist in clinging to the outdated concept that buildings must be supplied with electricity generated somewhere else. Why not install efficient solar cells on each and every new building in the desert, including homes, and distribute the profits go to homeowners instead of utility shareholders? That would create an incentive to generate as much power as possible. The resulting income stream would help pay their mortgages, reduce the risk of default and lower interest rates. Of course, utilities could still compete with other licensed contractors to monitor, maintain and repair the distribution grid, necessary for industrial-scale electrolysis and aquafacture.

solar buildings, — Building with solar panels

Multi-story buildings have a larger theoretical capacity to generate more electricity for the same area of real estate than single family homes. The drawback is that they need additional space from other buildings of equal or greater height in order to avoid each other’s shadows. Thus, a dense forest of skyscrapers would not be ideal.

and solar homes, no matter how modest, — Add solar panels to any and all homes, no matter how modest,

If every home in every desert city were equipped with enough panels to produce a surplus of electricity during the day to charge batteries to be used at night, when the demand is lower, and export whatever is left to big users, the cities themselves would become the generating power plants. This disperses the generating sources, an advantage in case of war or terrorist acts.

to produce hydrogen and chlorine by electrolysis at Death Valley. Save and store the chlorine; compress and pipe the hydrogen up to… — To produce hydrogen and chlorine by electrolysis at Death Valley. Save and store the chlorine; compress and pipe the hydrogen up to…

Compressed hydrogen -not water- would be pumped uphill. The advantage is that hydrogen weighs much less than water, therefore it requires less energy to pump. Because hydrogen is lighter than air, it tends to rise. This would simply accelerate the process.

suitable mountaintops in the desert… — Suitable mountaintops in the desert…

This is California’s Sierra Nevada, facing north. To the west is the San Joaquin Valley (not shown), to the right is a portion of the great southwestern desert. There are many mountains and hills in the desert that rarely, if ever, get any precipitation. Below are ravines and dry river beds. Only geologically suitable mountaintops would be used.

with new 1000 megawatt hydrogen power plants. Store a 24 hour supply of compressed hydrogen in man-made caverns and run the plants day and night. Fuel cells are not required. — New hydrogen power plants. Store a 24 hour supply of compressed hydrogen in man-made caverns and run the plants day and night. Fuel cells are not required.

Clusters of five or more 1000-megawatt power plants would be built on top of selected mountains and use an advanced hydrogen turbine, currently under development, to burn hydrogen directly without fuel cells.

Condense and store the water vapor that the plants will produce. — Condense and store the water vapor the plants will produce.

When hydrogen is burned, water vapor is produced. Instead of allowing it to dissipate into the atmosphere, the latter would be collected, condensed and stored

Use the same aquafactured water and gravity to turn turbines in a series of cascading plants located below the hydrogen plant. Their combined output should greatly exceed the energy used to produce, compress and pump the hydrogen. Dams are not required, only pipelines.

Below the hydrogen plant, a cascading series of water-driven turbines would be built. Costly dams would not be required, only pipes to feed the water to each successive turbine. The angle of descent and the pressure of the water would be designed to maximize efficiency. The jobs created by this system would be permanent and expandable. They would rely on free, inexhaustible raw materials (solar energy, seawater and gravity), not finite and unhealthful fossil fuels or nuclear fission.

Use the new drought-proof source of water (and the stored chlorine, to treat it as needed) to create an economic frontier in the desert and elsewhere, recharge depleted aquifers, and save crops.

This is aquafacture: the manufacture of drought-proof, pure water anywhere, even in distant inland deserts. Unlike desalination, which consumes vast amounts of energy and requires a nearby natural sea shore, aquafacture actually generates a surplus of energy, makes water, requires no exploration and mining in dangerous locations, precludes the possibility of polluting spills and radioactive accidents, ends the dumping of carbon into the atmosphere, and ushers in the possibility of making the deserts green to recycle the carbon dioxide already in the atmosphere. Farmers and cities would get a constant, predictable amount of energy and water the year round without the possibility of floods or droughts. The system depends exclusively on sunlight, seawater and gravity, all practically inexhaustible and free.

Using the new energy, pump seawater from Death Valley Lake to dry lakebeds throughout the Southwest.

The system is expandable. There are innumerable dry lake beds throughout the southwestern states.

Create a vast interconnected network of shallow, warm, saltwater lakes with waterfront and view real estate; perfect for tourism, retirement, water sports, and fish farms of high value endangered species. Clone the hydrogen system as desired.

Once interconnected, the resulting ecosystem would be supported and improved by life-giving water. Since so many mountains and hills surround the proposed lakes, the real estate in and around the area would have stunning views not seen in millions of years. In effect, the inland sea of prehistoric times would be restored to user-defined specifications.

Export any excess water concentrate (hydrogen) and accompanying chlorine (to treat the pure water their hydrogen plants will aquafactured) to China, a vast, insatiable and receptive marked due to its — Export any excess water concentrate (hydrogen) and accompanying chlorine (to treat the pure water their hydrogen plants will aquafacture) to China, a vast, insatiable and receptive market due to its

If we are to halt the emissions of carbon dioxide and methane, the chief culprits of global warming, enough hydrogen will have to be made available to China, India and Japan. They all consume enormous amounts of fossil fuels to generate electricity and will be forced to consume even more to meet future demand. China alone accounts for 50% of global coal use, and more than half of the country’s landmass has little or no water. Theoretically, even the Gobi Desert could be developed with aquafacture!

Extreme as it is, air pollution is not China’s most pressing environmental problem. The massive, continuing proliferation of factories has polluted most of its lakes and rivers.

It’s not only that over half of China is extremely dry. Even areas that are supposed to have abundant rainfall have been hit with severe drought, a consequence of global warming.

and unquenchable thirst for energy to support its high growth rate.

China’s economy must grow to lift its people out of poverty. If and when its per capita income reaches parity with the U.S., its demand for energy and water will increase to levels never seen. Without aquafacture, how will they and the rest of the world meet future demand?

A win-win solution. Millions of new, well paying middle class jobs for the two largest economies powered by renewable energy. The result: clean air and water, balanced trade, and possible cooperation rather than confrontation.

Nuclear-armed mankind is at a crossroads. Either we cooperate to reverse the damage we’ve already caused to the environment, which is accelerating, or we’ll have to face consequences no one can foresee or control.

Major Problems

Though by no means all-inclusive, the following are among today’s most intractable problems:

Global warming. Our planet has a fever, and it’s getting worse
Distribution of income and wealth: the abysmal inequality in the U.S. and much of the world.
The Electoral College and its ramifications.
Political gridlock.

Sanctions: a policy with unintended consequences.
Enormous chronic trade deficits.
The cost of education. Universities welcome foreign students because they pay higher tuition. Are they training our competitors?
The looming social security crisis.
The mushrooming national debt.
The worship of money.
The skyrocketing cost of medical and long-term care insurance. Who will pay, and how much, for those who cannot afford coverage?
Derivatives: A Sword of Damocles hanging over humanity, or the greatest source of wealth ever invented?
Real Estate appraisals -the unappreciated last line of defense.
The housing crisis.
Corruption. What are the risks to whistle blowers?
Privacy -the unauthorized selling of financial, personal and medical information to anyone willing to pay for it.
The inevitable, ongoing spread of nuclear weapons. What is the end game?
The risk of accidental nuclear wars.
The growing probability of intentional nuclear wars.
A new (unsustainable) arms race with China and Russia.
The chronic, intractable Israeli-Palestinian conflict.
The ongoing mass extinction of plants and animals.
Lack of safe, reliable, adequate and affordable mass-transit systems in all major metropolitan areas.
Low-skilled Immigration. What happens if the source of cheap labor dries up?

Introduction

Welcome to Wikisolver, a free cooperative effort dedicated to finding feasible, practical solutions to the thorniest issues of our time, including, but not limited to, global warming, drought, and the yawning, growing gap in the distribution of income and wealth.

How It’s Organized

The site consists of one horizontal menu (in yellow letters at the top of the page), categories of posts on the left, and useful, informative external links at the bottom, sorted by topic. Plan A is a specific, feasible blueprint to simultaneously:

Halt -and eventually reverse- the accumulation of carbon emissions in the atmosphere.
Prevent flooding of low-lying cities.
Conquer drought, including deserts far from any body of water where desalination is impractical or impossible.
Substantially reduce the abysmal gap in the distribution of wealth and income without necessarily resorting to onerous, egregious taxes on the rich.

The top menu includes a detailed description of how the plan works, examples of how it could be replicated in various areas with a variety of geographic, geological, topographic and cultural characteristics, and warnings of what will happen if these problems are not promptly addressed and solved.

The left menu consists of Posts related to these and other pressing issues, sorted by topic, and a Search Box. Below it is a section of useful external links, by subject. To the right of them is our Featured Post, and to the right of that is the RSS section that allows users to subscribe to any or all of the categories on the list.

NOTE: RSS Link of a particular category is the category URL followed by “/?feed=rss2” or “/feed” without the Quotes.

Homes Too Expensive

They say all real estate is local, but the West has more recently been an indicator of what is to come for the rest of the nation. It was the first region to crash in the mid-2000’s and the first to show signs of recovery toward the end of the last decade. Now the tides have turned again.

Sales of existing home sales nationally fell 3.2 percent in October 2013 from the previous month, but in the West they were down 7 percent. The West was also the only region to see a year-over-year decline in home sales.

“In the West region there is a significant shortage of inventory, so you have buyers who are looking for the right home unable to find it and unwilling to commit,” said Lawrence Yun, chief economist for the National Association of Realtors. “But because of the inventory shortage, one is still seeing strong price increases in the West.”

California is a glaring example. The median price paid for a California home in October was $357,000, up over 25 percent from a year ago, according to San Diego-based DataQuick. This was the 20th-consecutive month of annual price gains and the 11th month where those gains exceeded 20 percent.

As distress, in the form of foreclosures and short sales, move out of the West, there are far fewer low-end homes to buy. Just 6.6 percent of California homes sold in October were foreclosures, the lowest level since 2007. Supplies are down 26 percent in San Francisco, according to the California Association of Realtors, and that is pushing many buyers to condos instead of single family homes.

Condominium sales nationwide were actually up over 3 percent in October month-to-month, according to the NAR, while sales of single-family homes fell over 4 percent.

“Many buyers are considering more affordable options, such as condos and town-homes, especially in the San Francisco Bay Area, where there is a greater abundance of these property types,” CAR’s Leslie Appleton-Young said in a release.

While home prices in California, and across the nation, are still well below their peaks of the housing boom, there is a major difference for home buyers today: credit. Mortgage rates may be lower on the 30 year fixed, but that wasn’t the product used during the boom. Adjustable rate loans with no down payment requirement and 1 percent “teaser” rates were popular. Those are gone today. Now, most loans are fixed rate products that require larger down payments and higher credit scores.

“Bottom line, on a monthly payment basis and relative to income needed to qualify for a loan, a house in California is far more ‘expensive’ than from 2004 to 2008, even though house prices are not back to peak levels,” said Mark Hanson, a California-based housing analyst. “Put another way, it costs a lot more today to pay for a house using a mortgage than it did from 2004 to 2008. Thus, if 2004 to 2008 was a “bubble,” then this must be, too.”

On the flip side, home price gains are slowing in Phoenix, which like California saw prices jump over 25 percent recently. Now they are up just 16 percent annually, according to CoreLogic. Sales fell 8 percent in September, despite a 32 percent jump in inventory, according to the Cromford Report.

Investors may be putting some properties back on the market again in Phoenix, eager to take advantage of higher prices, but those same higher prices are crimping demand. If this is an indicator of what is to come in California, that is a clear red flag.

The rest of the nation did not see the same dramatic swings as most Western markets, but the supply, demand and pricing dynamics are similar. Prices are up over 12 percent nationally and inventories are down across the nation. For those predicting the national housing market over the next six months, watching the West is a good idea.

Original article in CNBC, 11/20/2013

Inside Countrywide

WorkingRE Magazine

Interview: Appraiser Who Brought Down Countrywide

By Isaac Peck, Associate Editor

The U.S. housing bubble and the corresponding real estate market crash of 2007-2008 brought about one of the most severe economic downturns in America since the Great Depression. The fallout was extensive: banks failed, established companies declared bankruptcy, the net worth of American households plunged, and millions of Americans lost their homes and jobs in a great recession that quickly spread globally, submerging the economies of Europe, Asia, and the developing world.

Among the many firms and individuals who acted irresponsibly, and maybe criminally, perhaps none did so with such flair and recklessness as Countrywide Financial. Before its rescue-sale to Bank of America (BOA), Countrywide was the largest mortgage lender in the United States.

Countrywide became a “leader” of sorts in the lending industry, according to numerous lawsuits filed by the Department of Justice, by adopting reckless lending practices, encouraging fudged loan applications, and violating appraiser independence in order to gain market share. A move that, some say, led to other lenders lowering their standards to compete.

A little-known fact is that the original whistleblower at Countrywide Financial, the man whose suit sparked an investigation that culminated in a one billion dollar settlement between BOA and the Department of Justice, is a real estate appraiser named Kyle Lagow.

Kyle Lagow

Lagow was an appraisal manager and assistant vice president at Landsafe, Inc., the appraisal subsidiary of Countrywide, a position which gave him an inside look at the practices which caused the downfall of the largest mortgage lender in America. For his part, Lagow sees Countrywide as being at the heart of both the housing bubble and the real estate crash. In his words, Countrywide, “Started a train and laid the tracks that ran the industry off the edge of a cliff.”

This is his story.

How It Began

Kyle Lagow of Plano, Texas says he was an appraiser running his own firm for 14 years when he was contacted in 2004 by Landsafe and offered a position as an appraisal manager, responsible for building an appraisal division to span several states.

“The third time they called they made the opportunity attractive enough and told me that I would be able to build a staff of quality appraisers. So I told them that as long as we do it right, I’ll run it,” Lagow says.

At Landsafe, Lagow was tasked with hiring and training a division of staff appraisers spanning multiple states whose primary purpose was to appraise a growing volume of Countrywide loans. Ultimately, Lagow helped open new markets for the company, expanding Landsafe’s appraiser panel into Utah, Colorado, Arizona, Louisiana, Texas and Oklahoma.

Fraudulent Appraisals

Lagow says it didn’t take long for him to realize that Landsafe’s executives weren’t interested in quality appraisals. The original suit filed by the DOJ alleges that in early 2005, a Landsafe executive called a meeting of appraisal managers and made it clear that (1) they needed to quit thinking of an appraisal as a separate unit, (2) that Landsafe appraisers were there only to “help facilitate closing,” and (3) that they needed to change their “thought process.” (You can find the suit at WorkingRE.com; Sidebar Information (left column); Lagow vs. Countrywide Original Complaint.)

“An appraiser would turn in his or her appraisal. If it was low or didn’t meet value, it went to a reviewer. If the appraiser didn’t meet value, the reviewers were instructed to go and look at the market to see if they used the best comps and to try to discredit the appraiser. The kicker is that I have an appraiser who I trusted, hired and put on my fee panel because I believed they would do a good job. But at Landsafe, the entire review process was designed to ensure the appraisal came in at value. If one of my appraisers didn’t meet value, they were blacklisted. Our own company would turn them in to the state and call them a bad appraiser,” says Lagow.

Unfortunately, extreme internal pressure to meet value and the blacklisting of quality appraisers was just the tip of the iceberg. In 2005, Lagow learned of a joint venture between KB Home and Countrywide, wherein Countrywide would provide the loans for new construction developments of KB Home. Lagow was tasked with hiring appraisers to complete that appraisal work. However, Lagow says that when his staff appraisers showed up at KB’s developments to appraise properties, they were turned away and told that KB had an agreement with Countrywide where it alone would decide who did the appraisals.

Lagow soon learned that a separate appraisal manager at Landsafe was handling all of KB appraisal assignments; the work went to a small number of hand-picked appraisers. The DOJ suit alleges that in Houston, the appraiser chosen by KB Home completed over 400 appraisals in a single month by himself, all at a price of $450 per appraisal.

Shortly after Lagow realized what was happening, he began sending notifications to upper management, even though he had been warned against putting his concerns in writing. On September 7, 2005, Lagow wrote the following:

“In summary: We have a clear attempt to control the market- utilization of one appraiser, a refusal to supply data with outside appraisers, and the appraiser of choice is being paid a fee abnormally higher than what we pay everyone else for the same work. Add in the fact that recent appraisals from outside appraisals have come in low, and I could make a fairly strong case for market manipulation and appraisal fraud. Even if it is not intentional, it looks bad.”

At the end of his email, Lagow warned that the problem would spread if nothing was done to fix it: “I also want to caution anyone who cares to listen, that if we allow this in Houston it will spread through the KB Home markets.”

Lagow says that he personally inspected many of the appraisal reports completed by the Houston appraiser. “I looked at appraisal orders. I could tell you when the inspection appointments were scheduled. One day, one was set for noon and the next one at 12:01 P.M. It was a total fraud,” says Lagow.

See No Evil

Lagow’s words of warning fell on deaf ears as Landsafe executives proceeded to institute a “production-based” pay system where staff appraisers were forced to radically increase their appraisal volume in order to earn the same income, according to the complaint filed by the DOJ. Lagow also says that Landsafe also facilitated a channel whereby Countrywide’s own loan officers could request target “audits” of Landsafe appraisers who were not meeting value.

The original suit filed against Countrywide by the DOJ lists over half a dozen appraisers who were “audited” at the direction of loan officers who were upset that appraisers were not meeting value. According to the suit, one of the appraisers that Lagow hired to add integrity to the appraisal process was told point blank by a KB Home sales manager that KB would no longer require his services if his appraisals came in below contract price. When he refused to go along with the fraud, the appraiser was blacklisted from completing appraisals on any Countrywide loans.

Frustrated at the apparent fraud he was witnessing, Lagow sent this chilling email to his supervisors at Countrywide Governance in February 2006:

“At the risk of losing my job I am forwarding this email to you and want to relay my deepest concern for the situation addressed. I report directly to you but I am also forwarding this to (a superior) because she and I have talked about general concerns in the past.

I have spent considerable time looking over the KB Home situation in Houston, Texas and took some time to drive a couple of subdivisions this weekend and look around. As you are aware, one appraiser controls the orders and the values…I believe that (name redacted) and KB Home are engaged in a fraud to manipulate the local market.

In looking at the appraiser’s reports, when he needs to, for value, he goes outside the market to access superior sales to bump up the market and then uses the same sales in future sales, thus establishing and manipulating the market. The appraisal reports I have examined have a continual characteristic of selective manipulations of the market data in an effort to pump up the market. It is my opinion that, based on very limited data, we could be making 115% loans in the markets and if you examine some KB Home subdivisions you see significant foreclosure rates. I believe that by allowing the situation to continue we are condoning the activity and placing at risk the jobs of our employees at Landsafe and Countrywide. I am even more concerned, and I do not have any supporting data other than the logic that an order has to come from us, that the individuals who mandated that only one appraiser be utilized may be a Countrywide employee and could be implicated in a conspiracy to defraud both the homeowners and the stockholders.

We are charged with the responsibility of protecting our client’s assets. If I am correct on any of this, and if it blows up, the blame will rightly fall on us for failing in our task. This has the potential to be a lightning rod for the demise of Landsafe and we will need to act to make sure every effort has been made to safeguard against this…”

Nothing changed as a result of the letter, Lagow says. Finally, in 2008, Lagow says he sent an email directly to Angelo Mozilo, CEO of Countrywide, urging him to stop the fraudulent practices and warning him that his executives were not reporting the facts to him.

“I really wanted Mozilo to have not been aware of this. I wanted to believe that a guy who spent 40 years building this company wouldn’t want its legacy to be that we ran an industry off a cliff and that we gave our industry a bad name. I couldn’t believe that he could have known about it, I went to everyone else before I went to Mozilo,” says Lagow.

Lagow explains that Mozilo sent someone down to, in his words, “put on a show.” He was even contacted by several of Countrywide’s top executives who seemed concerned, but the “conclusion” of management was that Lagow’s concerns were unfounded.

Fighting from the Corner

By late 2008, Lagow learned that he needed treatment to combat cancer and he was subsequently fired from Landsafe. “I fought inside the company for a long time to stop what was going on. When I left I told them, look, I’m going to fight to fix this either inside the company or outside the company,” says Lagow.

Leaving Landsafe wasn’t easy for Lagow. “At the time, I was pretty defeated. I built their market for them. They took my model and applied it to the east and the west coast. They didn’t have a clue how to hire and manage a staff appraiser division,” says Lagow.

Lagow says he wasn’t even planning to file suit. “I had cancer when they fired me. I just wanted to make it through that fight. I honestly didn’t want to go this route- I was on the list to do work for Bank of America. But then I received a letter from a BOA’s attorney saying that they were not going to put me on their fee panel list,” says Lagow. At that point, Lagow said he had no choice. “I had to fight, there was nothing left. I was broke. I couldn’t do work for them, I didn’t have any money. After all that they put me through, I was ultimately deprived of this little bit of dignity of being able to do appraisal work. I got mad. I picked up the phone and called up some lawyers who were filing class action lawsuit. I said how can I help?”

The rest is history. In late 2009, Lagow filed a whistle-blower complaint under seal, charging that Countrywide had committed fraud and violated the U.S. False Claims Act.

But things got worse for Lagow before they got better. “Once the lawsuit was filed I couldn’t talk to anybody, not even my family. You go out there to try to help an industry, and no one even knows you’re fighting the fight. Your kids look at you like a failure, you can’t get any work. You’re fighting cancer. I lost everything, I had repo people knocking on my door,” Lagow says.

Lagow’s complaint was among at least five other whistle-blower complaints that were rolled into the $25 Billion settlement between regulators and the nation’s largest banks in 2012. Lagow’s complaint was also critical to a $1 billion settlement between the Federal Housing Administration (FHA) and Bank of America in 2012.

For Lagow, his eventual victory is bittersweet. “As far as being a whistleblower, I wouldn’t wish it on anyone. I got lucky. Without my lawyers, Tom Loeser, Shane Stevenson, and Stevie Berman, who were courageous enough to take the case, I’d be sitting in a house in default.”

For his share of the settlement, Lagow will receive $14.5 million for his role as whistleblower. Lagow is thankful but says that it isn’t as much as people might think. “By the time the government takes its share, and the attorneys take theirs, it’s not as much of a windfall as everybody thinks. If I were working for the rest of my life, I would earn more than that,” says Lagow.

Present and the Future

Appraisers may not be surprised to learn that Lagow doesn’t think much has changed in the industry, even after all he has struggled for. “I don’t think I made much of a difference. Everybody likes to say that there have been big changes. The only change right now is that there aren’t as many loans being done. If you had stolen $1 billion at gun-point, would you still be typing on your computer? I don’t think so. Yet the same people who were in charge when this fraud took place are still here. My supervisor at Landsafe, the area manager, is still there. The appraiser who was completing 400 appraisals a month in Texas still has his license. So you tell me, what’s changed?”

“You still have staff appraisers who know that if they don’t meet values, their name is going to show up on somebody’s do not use list,” Lagow continues. “Volume corrupts because the biggest problem that we had back then was that loan officers who did the biggest volume would say, ‘If you don’t get rid of so and so, I’m going to go somewhere else.’ So loan officers had tremendous weight and influence and they still do. You have the same infrastructure in place so once loan officers start doing millions of dollars of loans again, the same thing will happen.”

“What these criminals did, committing fraud and inflating values, was a felony before and it is a felony now, yet we haven’t put any of the big players in jail- so nobody’s afraid,” Lagow says. “Go out there and look and see how many people have been indicted from small private mortgage companies. Look and see how many have been indicted and tried and put in jail from the largest mortgage companies. You will find that there are numerous individuals in the private sector but when it comes to the big companies, the regulators don’t go after them. Let’s start putting some people in jail and see how quickly the rules start getting followed. Unless there is a profound movement in the industry as a whole, they’re going to do it again. And they’ll put the burden, and the blame, on the appraiser.”

Lagow’s message to other appraisers is simple: do good, honest work. “My message is to do the numbers, do the best appraisal reports you can. If somebody doesn’t like your work, if your values aren’t there, walk away. Have the dignity and self-respect to walk away and go find another client, everything else will take care of itself.”

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