You've Got to be Kidding Me

Fool me once, shame on you.

Fool me twice, shame on me.
- unknown

If I had a nickel for every time that I could use that quote in talking about Europe's problems, the U.S. Mint would lose some serious money.  From Coin Update: Cost to Make Penny and Nickel Rises, Annual Loss Reaches $116.7 Million (emphasis mine)

The cost for the United States Mint to produce and distribute the cent and nickel rose to their highest levels, and are now more than double the respective face values. For the fiscal year ending September 30, 2011, the unit cost for the cent was 2.41 cents and the cost for the nickel was 11.18 cents.

Yet the winner in the category of You've Got to be Kidding Me, from Marketwatch: ECB to again accept Greek bonds as collateral

The European Central Bank on Thursday said it would again accept Greek government bonds as collateral in its funding operations. The bonds had been ruled temporarily ineligible for use as collateral last month after Standard & Poor's declared Greece to be in selective default. The ECB said at the time that eligibility would be restored once a previously-agreed collateral enhancement program for Greece was formally activated.

Seriously?  The results of the Greek debt swap haven't even been announced yet.  In case you didn't know, the deadline to exchange ~€200 billion Greek bonds for new bonds that retain around 30% of the original value was today.  Why would anyone do that?  Because in order to qualify for their second bailout, Greece held a gun to their debtors's heads and said 30% or 0%, take your pick.  

The biggest irony though is that the ECB received a special bond swap that paid out 100%.  What are the odds that the ECB takes a loss on any future debt swap?  The ECB will take payment in full again.  

Even better, the second bailout hasn't been paid, but there's already talk of a third bailout.  From Der Spiegel: Merkel's Government Divided over ESM Demands

Demands from abroad to increase the size of the euro bailout fund have put Chancellor Merkel in a difficult position, caught between international pressure and domestic demands. Even worse, the troika monitoring Greece's financial situation believes that a third bailout package may become necessary within a mere three years.

When is it ever going to end?  It's said that Albert Einstein said insanity is doing the same thing over and over again, but expecting a different result.  It'll be interesting to see if common sense prevails as Portugal (and possibly Spain) are next.

In some ways, the Greek debt exchange is a necessary first step.  I often write that debt can only be retired through three means - by repaying it, restructuring it, or defaulting upon it.  Finally, debt is being "defaulted" upon - even if it is "voluntary".  

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