Paul Krugman writes:
Justin Fox suggests that we learn from the way Sweden dealt with its financial crisis at the beginning of the 90s. I’m looking into it.
What Justin doesn’t mention, however, is that (according to Reinhart and Rogoff [pdf!] ) the resolution of Sweden’s financial crisis imposed a fiscal burden — that is, required a taxpayer-financed bailout — equal to 6 percent of GDP. That would be $850 billion in America today. Just saying.
I just got off the phone with the abovementioned Kenneth Rogoff, who is convinced that Congress will end up spending trillions of dollars sloppily bailing out the mortgage business, so an $850 billion price tag attached to a cleanup that resolves most of the current credit problems, wipes out the shareholders of insolvent institutions, and leaves us with a more rational regulatory setup (as the Swedish bailout seems to have done) actually sounds like a pretty good deal to me.
