As I’ve reported before, the 2.689 million job loss turned into a gain of 243,000 only because Labor’s seasonal adjustment programs expected the job losses to be bigger. The warm winter weather probably kept some people from being put out of work, and this threw off Washington’s calculations.

Will that same thing happen with tomorrow’s number?

That isn’t likely. Yes, the weather has remained warm. But Labor’s computers are expecting undoctored, not seasonally adjusted growth of more than 800,000 jobs in February.

So there’s less chance that the seasonal adjustments will be pleasantly surprising.

And February isn’t one of those months in which Washington includes a huge guesstimate for jobs added by companies it thinks, but can’t prove, were just started. This so-called Birth/Death Model has been the biggest contributor to job growth — bogus job growth — over the past few years.

Also, John has spotted a link between Tuesday’s stock market dive and Wednesday’s story about the Fed’s latest thinking on the next round of money printing:

Even though one Fed official last week told investors to stop depending on “morphine” from the central bank, the cry for another version of quantitative easing went out less than 24 hours after the Dow Jones industrial average fell 203 points on Tuesday.

Why not give Wall Street what it wants?

Because the Fed’s money-printing operation is leading to higher commodities prices. And as thrilled as I would be to bail Wall Street out again, can’t we at least wait until it really needs our help?

That’s a good question (the second one, that is).

A ‘deadbeat’ bailout – NY Sun
The Mortgage Deal: A Reality Check – NPR
Mortgage deal: What the critics say – CNN/Money
U.S. banks agree to $25 billion in homeowner help – Reuters
Settlement launches foreclosure reckoning – Washington Post
Why the Foreclosure Deal May Not Be So Hot After All – Taibblog
Why Millions Won’t Get Help From Big Mortgage Settlement – ProPublica
Top Twelve Reasons Why You Should Hate the Mortgage Settlement – Naked Capitalism
Foreclosure Settlement Falls Short, Still Worth the Wait: View – Bloomberg
Is The Foreclosure Settlement A Shadow Bailout For Broke California – Zero Hedge
What the foreclosure settlement means for you – CNN/Money
Mortgage Settlement and Negative Equity – Calculated Risk
Robo-Deal Is All About Lowering Mortgage Principal – CNBC
Banks Not Off Hook With $25B Mortgage Agreement – Bloomberg
Mortgage Plan Gives Billions to Homeowners, but With Exceptions – NY Times
Florida Homeowners Find Little to Cheer in Deal With ‘Gangsters’ – Bloomberg
Mortgage Deal Props Up California House of Cards – Bloomberg
Cramer: This Mortgage Settlement Is Huge – The Street
Foreclosure Deal to Spur U.S. Home Seizures – Bloomberg
The Mortgage Settlement Is Fine – DealBreaker

I’d be lying if I said I’d read all of these (or more than a couple for that matter), but I intend to take a look here this morning. Just based on the headlines, it would appear that the deal is getting a mixed reaction.

Says Stockman:

This is ultimately, at the end of the day, a bailout for JP Morgan and Wells Fargo. They’re the big writers of second mortgages and home equity lines. Those – and there’s two or three or four hundred billion dollars in the top three or four banks – are in great jeopardy in the case of of homeowners who have mortgages, that are primary mortgages, that are way under water on primary mortgages and are likely to default or throw in the keys at some point down the road.

Good point…

New boss, same as the old boss … and the ones before that.

Maybe we’ll get a good third party candidate this year…

During normal times, economists’ models of how the world works seem to function reasonably well, but when a multi-decade orgy of money and credit creation came to a head a few years back, they were completely unaware of how badly some people were acting and how contagious this was.

The central bank meets this week and is expected to revamp how they communicate their thinking about monetary policy to the world, but, maybe they should spend more time figuring out how to better observe what’s going on in the world – looking beyond the charts, tables, and models that they had their noses buried in back in 2006, oblivious to the looming crisis in housing and credit markets.

It was all there to see for anyone willing to make a modest effort to get out into the real world and look around.

Wild-eyed buyers lined up for blocks to buy new condos and mortgage brokers with barely a high school education were raking in hundreds of thousands of dollars a year in commissions by peddling all kinds of “exotic” mortgages to borrowers who, in many cases, didn’t really understand what they were signing.

As we’ve come to find out, there was a good deal of fraud involved here by both lenders and borrowers as few seemed to care about how their individual actions might affect others in the fullness of time.

You might say that a good asset bubble brings out the psychopath in many of us.

Everyone was swept up in a financial bubble of the largest magnitude and, with only a few exceptions, economists were content to look at their models – models that ignored the “shadow banking system” and failed to reflect how a rapidly inflating asset bubble was affecting behavior – while predicting clear sailing ahead and patting each other on the back for having done such a good job.

The worst of the psychopaths were on Wall Street and those tales of excess came to light in the years that followed.

A pattern of disregard for others was at the core of what Wall Street did with mortgage backed securities and related derivatives, a point that became clear as internal emails were released in the years that followed. Investment banks made boatloads of money – both in selling securities and then betting against them – and this behavior became standard operating procedure for some firms.

One could argue that the 20-something mortgage brokers really didn’t understand the bigger picture, but that can’t be said for those peddling mortgage products on Wall Street.

They have no such excuse.

These were some of the nation’s best educated and brightest minds and they took their cues from top management, yet they exhibited all the characteristics of the fellow to the right – shallow emotions, the lack of a conscience, selfishness, and lack of remorse.

Meanwhile, economists, particularly those at the central bank, were blissfully unaware that anyone was doing anything wrong in the financial system and that it could all come tumbling down around them in just another year or two.

Former Fed Chief Alan Greenspan famously “found a flaw” in his theory of how the world works and that flaw was, basically, that the world is loaded with psychopaths, particularly on Wall Street.

But, psychopaths don’t exist within economists’ models.

In fact, I’m not sure if your run-of-the-mill economist acknowledges the existence of psychopaths in the financial system at all.

While trying not to paint with too broad a brush here (oh, what the hell), economists are an insular lot prone to group think and that much should be clear from the 2006 Fed transcripts. Some would say the dismal set is naive about how the world really works and not much interested in learning (in many cases a result of being scarred by bullying in grade school) and that they’ll continue to just keep trying to fit their square peg models into a world full of round holes.

Maybe they should pay a little bit more attention to what’s happening in the real world rather than relying on their models where only “rational actors” exist.

Either that, or they should get out of the business of stewarding the economy.

Instead, relying on the many poor souls in the financial media who had to slog through transcripts for all eight meeting that year, we find that Treasury Secretary Tim Geithner (New York Fed President at the time) appears to have been the most misguided as to the legacy of the outgoing Fed chief when he noted:

I’d like the record to show that I think you’re pretty terrific, too. [Laughter] And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative. [Laughter]

Surely you can understand better now…

More confirmation of the Peter Principle and that economists are particularly ill-suited to run an economy were provided in this assessment of the Greenspan tenure at the Fed by San Francisco Fed President Janet Yellen who, since, has been promoted to Fed Vice Chair:

Needless to say, it’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. And if I might torture a simile, I would say, Mr. Chairman, that the situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot. [Laughter]

Again with the laughter.

About the only one who seemed to have a clue about what was going on back in 2006 was Fed Governor Susan Bies who at that very same January meeting noted the following:

The one area—and I want to second Dave Stockton’s remark—of main concern is the housing market. Let me talk about it a little differently from some previous comments today. When we look at the aggregate levels of debt that households have and relative prices, one of the things as an old lender I worry about is the ability to service the debt and the discretionary spending that households have. While 80 percent of mortgages are fixed rate, 20 percent are variable. Starting in 2002, we saw a jump in ARMs, taking advantage of the very steep yield curve at the time. We now are in a period when not only the fancy option ARMs, the exotic products of the past eighteen months, but also the 3/1 ARMs and the five-year ARMS that became very popular in 2002 and 2003 are repricing.

If interest rates just hold where they are right now, we estimate that the monthly debt service cost is going to go up by at least 50 percent on that 20 percent of mortgage portfolios. If you look at the Greenbook, you’ll notice that the financial obligation ratio rose quite substantially in the past six months. It is now back to the peaks of 2001 and 2002, and we have a lot of mortgages still to reprice. We also know that some of these exotic mortgages don’t amortize, but they will kick in and start amortization and that will also pull cash out of discretionary spending.

Months later, in the May transcipt(.pdf), Ms. Bies again warned about the housing market:

I just wonder about the consumer’s ability to absorb shocks. The buildup of home equity and the ability to borrow against it have helped individual homeowners when they have had layoffs, medical problems, divorces—all the things in life that create month-to-month problems for cash flow. With the growth of negative amortization, home equity is not being built up anymore. Negative amortization clearly helps consumer spending because consumers, in effect, have a smaller amount of their take-home pay that has to go to the mortgage payment every month, and so it is available to be spent elsewhere. It is probably a more pernicious type of home equity withdrawal because you don’t take an action to withdraw it. Now it is planned that you will have negative amortization. It clearly changes the way we look at the role of savings as a precautionary balance to get the consumer through bad times, and it also has long-run implications regarding the importance of asset values vis-à-vis default rates both for the banking sector and for the household sector.

So the growing ingenuity in the mortgage sector is making me more nervous as we go forward in this cycle, rather than comforted that we have learned a lesson. Some of the models the banks are using clearly were built in times of falling interest rates and rising housing prices. It is not clear what may happen when either of those trends turns around.

Finally, in the December transcript(.pdf), Bies warns about subprime lending:

One thing I’m hearing more from some folks who have been investing in mortgage-backed securities and maybe in some CDOs (collateralized debt obligations), where they’ve been tranched into riskier positions through economic leverage, is the realization that a lot of the private mortgages that have been securitized during the past few years really do have much more risk than the investors have been focusing on. I’m hearing this from folks who understand that the quality of what goes into those pools varies tremendously when you don’t have the Fannie Mae and Freddie Mac framework for the underwriting.

Of course, none of these concerns made any difference, most Fed members likely content to continue on with the Greenspan policy of “mopping up” after bubbles, should the housing market prove to be just that.

Someday I surely will, though there doesn’t seem to be any real urgency since the recent spurt of money printing is not likely to end anytime soon. Between now and then, this graphic from The Economist’s Central banks: Crazy aunt on the loose will have to do.

It is fairly remarkable to stop and think how far we’ve come since the world’s central bankers saved us (and, of course, the biggest and most dangerous banks) from sure annihilation three years ago. Who would have ever imagined back in 2005 or 2006 that nearly the entire globe would have “turned Japanese” by now.

Who imagines today that the chart above left might not change for another 10 or 20 years?

This story at Spiegel Online has all the particulars about the video that has gone a bit viral, also known as “The 90th Rescue Summit” or “Euros for No One”.

For those of you new to this story, see this WSJ commentary by Gerald P. O’Driscoll the other day and his appearance on CNBC on the same subject.

The film is basically a compilation of interviews with eleven individuals, most of the names being familiar to readers of this blog including G Edward Griffin
, Jim Puplava, James Turk, Jim Rickards, Peter Schiff, Eric Sprott, and Bill Murphy.

My guess is that the Federal Reserve, fiat money, and gold come up quite frequently.