Secretary Paulson’s proposed $700 billion rescue package is a lot of money. So much money is involved that it represents a significant portion of the US GDP. This may be why there are enough members of Congress thinking about the cost to the taxpayer to slow down the bailout bandwagon. This package, together with loans to AIG and Bear Stearns, is almost 6% of GDP. This is much larger than the 3.7% of GDP of the savings and loan bailout in the late 1980s, which some Pixies may remember. Unexpectedly however, 6% of GDP is still much less than the cost of resolving other banking crises over the last 20 years.

Year Country...........% GDP

1988 US..................3.7
1991 Finland............12.8
1991 Sweden...........3.6
1994 Mexico............19.3
1997 Japan..............24.0
1997 South Korea.....31.2
2007 US..................5.8

Congress still needs to act soon. The Washington Mutual savings and loan was seized by the FDIC, and most of its operations were sold to JPMorgan.

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Eudaimonia