One of the more puzzling aspects of the government’s proposal to bailout the teetering U.S. financial system is the proposed price tag.

The figure "$700 billion" has been blaring from television sets and flashing in headlines for more than a week.

But why $700 billion? Why not $500 billion? Or $1 trillion? And why hasn’t anyone explained that price tag?

No one seems to know.

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The number is even more confusing given that one of the reasons the U.S. financial system needs bailing out is because no one knows the value of the securities that $700 billion is earmarked for purchasing.

One thing everyone (economists and market participants) agrees on, though: $1 trillion would have been too scary, frightening taxpayers and Congressman alike with the prospect of a bailout of that size. (It turns out $700 billion was too scary, as well. Congress rejected a first draft of the proposal on Monday, sending stock markets plunging.)

And $500 billion might not have been enough purchasing power at a given moment. (The language in the bill says $700 billion "outstanding at any one time.") Congress didn’t want to have to go back to the taxpayers and ask for more if $500 billion had turned out not to be enough.

So $700 billion was just right.

Gus Faucher, director of macroeconomics at Moody’s Economy.com., said, “It’s a number that is designed to reassure the financial markets that the government is serious about getting the financial markets back into shape.".

Yes, but is there any economic or scientific rationale for the figure?

“Not that I can tell,” Faucher responded.

The Bush Administration, with Treasury Secretary Henry Paulson serving as its point man, has proposed a rescue plan designed to provide a government-backed safe haven for the toxic debt of financial institutions saddled with bad securities tied to subprime mortgage loans.

The government would buy the bad debt at a price determined by the Treasury Department and then hold on to the securities presumably until the market for debt products returns. At that point the government would sell the securities, hopefully at a profit.

Ultimately, the plan is intended to inject liquidity into frozen credit markets, a move that would not only help big financial companies but also small businesses and individuals who have also been struggling to get credit.

It’s a huge figure -- $700 billion -- to be sure, but probably far more than will actually be needed to purchase the bad debt that dragged down the likes of Bear Stearns and Lehman Bros.

Faucher said he believes the total figure will likely fall far short of $700 billion – somewhere between $200 billion and $250 billion.

“But there’s nothing wrong with using a big number even if you don’t feel you’re going to use that amount. (The rescue plan) is designed to boost confidence. Nothing requires Treasury to use all those funds,” said Faucher.

Axel Merk, manager of the $400 million Merk Hard Currency Fund, said he and his colleagues have speculated that the U.S. government might have used the Scandinavian government’s bailout of its financial system in the early 1990s as a model.

The cost of that bailout was equal to 6% of Scandinavia’s gross domestic product, according to Merk. Six percent of the GDP in the U.S. comes to roughly $700 billion.

“That’s the only thing we have. That could be a reference point,” said Merk. “There’s been no rationale for anything. They’re just throwing money at the problem.”

Merk agreed that politically $1 trillion might have been too “shocking” a figure for reluctant Congressmen to support.

Of course, as Merk noted, if all of the recent bailouts are added up -- the government backed fire sale of Bear Stearns and the rescues of mortgage companies Fannie Mae and Freddie Mac, as well as insurance giant American International Group -- the price tag rises well above $1 trillion.

“This stuff is expensive, no doubt about it,” said Merk, with some understatement