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Sl Versus A Possible Gse Bailout

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by Zubin Jelveh
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Jul 14 2008 12:00am EDT

S&L Versus a (Possible) GSE Bailout

The worst case scenario for how much taxpayers will have to dish out in the case that a bailout of Fannie Mae and Freddie Mac is needed has been put at about $300 billion. How does that compare to the S&L bailout which cost $125 billion? This from Merrill Lynch:

Back in 1989, the US government formed the Resolution Trust Corporation (RTC) to purchase nonperforming loans from failed savings and loans. Ultimately the RTC purchased $125 billion in loans from the defunct banks and issued government-backed debt against them, according to an FDIC study done in 2000. The $125 billion in 1989 amounted to 2.2% of the prevailing GDP of just over $5 trillion. Against the current $14 trillion size of the US economy, $300 billion is quite comparable at 2.1%.

The actual size of a GSE bailout is expected to much smaller, however, at between $10 to $30 billion.

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