Risk Modeling Section – models don’t always work! – 2 important articles:

1.  NYT Article on Value at Risk (VAR) Models – long but worth reading – hat tip to Ira and Victor pointing this out  -  how much $$ to hedge out that last 1% of risk event??

2.  Taleb vs Merton, Cont. – Felix Salmon - continuation of Black Swan vs. Risk Modeling controversy -   Nassim Nicholas Taleb is angry. Not in the YouTube clip of the same name, but rather at Nobel laureate Bob Merton, whom Taleb attacked in a paper he co-wrote with Emanuel Derman of Columbia. – portfolio.com 

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Chart of the Day – To put this year’s performance in perspective, today’s chart illustrates the 15 worst calendar year performances of the Dow since its inception in 1896. As today’s chart illustrates, the Dow’s performance in 2008 ranks as the third worst on record. 
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The Debt Trap Unspoken Link Between Credit Cards and Colleges – JONATHAN D. GLATER – … Hundreds of colleges have contracts with lenders. But at a time of rising concern about student debt — and overall consumer debt —  the arrangements have sounded alarm bells, and some student groups are starting to push back.  … – New York Times

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O.C. house prices off $309,000 from peak – Jon Lansner -  Latest home-selling stats from DataQuick — for the 22 business days ended Dec. 16 – show O.C. homebuying running 40.1% ahead of a year ago. – ocregister.com

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Thoughts from a Russian-American about socialism here and there – quite interesting – Frame of Reference – By Vitaliy Katsenelson -  Vitaly’s Contrarian Edge
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Three Long Articles on Three Big Failures – David Merkel – … The first is from the Washington Post, and deals with the demise of AIG … The second article is from Bethany McLean of Vanity Fair.  I remember reading her writings during the accounting scandals at Fannie Mae.  She was sharp then, and sharp now. … The last article is another three part series from the Washington Post that is about the failure of our financial markets. -   ties them all together -  The Aleph Blog

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Solving The Housing Crisis Via The Bankruptcy Courts (on Cram Downs) – … There will be a tidal wave of BK’s. No way on earth that they can handle the crunch of say ten or twenty million petitioners.  … The consumer will look at it and say why not. Miss a couple of payments, suffer a recoverable hit on your credit report and get a hundred thou knocked off what you owe. How hard a decision is that? … – But Then What? 

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1.  Is Buying Bonds Really a Good Idea? – Felix Salmon – … As for the bonds, this could turn out to be a really bad time to move into fixed income — possibly the worst in living memory. Two things we know for sure: interest rates are incredibly low right now, and recovery values given default have also never been lower. A third thing we can be pretty sure about: the number of defaults is going to go up substantially before it starts coming down. … – Portfolio.com 

2.  The Riskiness of Bonds – by Felix Salmon  -  Yesterday I questioned the wisdom of retail investors buying bonds in this market, and boy did I get an earful back, especially from many of the commenters at Seeking Alpha. They accused me of not drawing the distinction between Treasuries and credit, and of not appreciating the record spreads being seen in the bond market. This morning, Henry Blodget gives us a useful chart, showing that the Lehman Aggregate bond index … – portfolio.com 

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has huge downloadable spreadsheet – Texas ratios for 8,196 banks= 95 bank failures & $21.9 billion in bailouts?   – Nick Gogerty 

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Fannie in Talks With FDIC to Force IndyMac to Buy Back Loans – By Dawn Kopecki – Bloomberg 

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Mortgage Rates Fall to Record Low Level – Mark Perry – Carpe Diem

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Shifted Balance – … There’s an old saying: “Everyone’s a capitalist on the way up and a socialist on the way down.” People want it all—to reap the benefits of free markets, but be protected against any downside.v … -   – By Fisher Investments Editorial Staff 

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Are Home Prices Still too High? – Michael Steinberg – … All of the Treasury’s previous attempts at free market mortgage modification have failed. I believe this is because mortgage investors are viewing the long-term economic value of housing based on more than temporary measures by the Fed. “Lite” modifications have failed because mortgage investors, banks and servicers have not matched payments with borrowers’ ability to pay.  … – Click Broker
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Drop in Conforming Limits Means More Jumbo Mortgages – KELLY CURRAN – As the New Year rings in, some homeowners are likely to feel the pinch of higher mortgage rates and tightened credit — in particular, borrowers in certain areas of the U.S., with a mortgage between $625,500 and $729,750. That’s because temporary legislation that had boosted conforming mortgage limits to as high as $729,750 in certain designated high-cost housing areas expired at the stroke of midnight Thursday morning. Effective Jan. 1 … – housingwire

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Who Saw The Housing Bubble Coming? -  Bruce Bartlett – Some forecasters were prescient; financial leaders weren’t. – Forbes 

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   IRA ARTMAN SECTION – thanks Ira: 

     3 from Minneapolis FED:

NeighborWorks America releases report on foreclosure counseling
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Risks and realities of the contract for deed – Crystal Myslajek – Community Affairs Intern
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Home to roost – Joe Mahon – housing summary for heartland served by Minneapolis Fed