Acronym Deja Vu

I just want to make sure I understand today’s European bailout rumor/plan correctly…

First, the European Financial Stability Fund (EFSF) will construct a Special Purpose Vehicle (SPV)

Next, all the European sovereigns with pre-default debt will place their toxic paper into the SPV.

Then, the SPV will issue bonds back to the same pre-default sovereign nations.  These bonds will be rated as investment grade.

Finally, the pre-default sovereigns (PIIGS) will use their freshly minted investment grade bonds to borrow at favorable rates from the European Central Bank (ECB), to recapitalize their banks.

Maybe I’m having deja vu all over again (with all appropriate props to Yogi Berra).

Only the last time, instead of EFSF, SPV, PIGGS, and ECB the acronyms were MBS, CDO, CMO, and TARP.  The track record of blending together massive volumes of toxic debt, slicing and dicing it, and having investment grade debt come out the other side is a little less than stellar.

But, hey.  The rumor/plan was worth a couple percentage points on the major stock market averages.  A few more acronyms and we’re likely to have a bull market on our hands!