The arithmetic of the $700 billion deal is very promising, and the terms, which include warrants for the United States to buy shares in the bailed-out banks, are much improved.

Assume, for example, that the U.S. Treasury buys $100 billion of "toxic" mortgage bonds for 50 cents on the dollar, which means it also will get the interest payments. So far, only 6 percent of U.S. mortgages are non-performing. But even if this figure rises as high as 25 percent, three out of four mortgages will still be making their interest payments. That means the Treasury can be making as much as 10 percent annual interest on the $100 billion.

That means those paying mortgages are worth more than the 50 cents on the dollar that the Treasury paid at a time of panic. In a year or two or three, when house prices stabilize, hedge funds, banks and insurance companies will be happy to pay 60 or 70 cents on the dollar, and the U.S. Treasury makes another profit on the deal.

But don't forget those warrants for bank shares. Once the banks are making money again and their share prices rise, Uncle Sam makes yet a third profit, over and above the interest payments and the higher price for the mortgages.

So the original $100 billion earns $40 billion in interest payments, gets another $30 billion from selling on what are now good loans, and then doubles its money by selling on the bank shares once they recover from their current fire-sale price.

So the $100 billion becomes $260 billion, the financial system is saved -- and Uncle Sam is still sitting on those 25 percent of the houses for which the loans did not perform and ownership reverted to the Treasury. They'll be worth something when house prices stabilize, maybe another $30 billion. A three-fold profit in four years is pretty good, particularly when the alternative looked ominously like a meltdown.

In fact, one important part of the small print will be what the U.S. Treasury decides to do with any profit it eventually makes on the $700 billion. Option one could be to help pay off the deficit and national debt. Option two could be the Social Security trust fund. Option three could be the Medicare account. Option four would be a new American sovereign wealth fund.

If the hypothetical sums above are anywhere close to reality, the $700 billion bailout could be worth as much as $2 trillion by 2012, so even after paying back the money to the Treasury (with interest) the United States would still be left with well over $1 trillion, which would make it the biggest and richest sovereign wealth fund on the planet.

Now comes the bad news. This may not work. The very fact that the U.S. Treasury is coming into the market to buy distressed mortgage-backed securities is going to raise their price. And even if the housing market stabilizes nationwide, there are pockets of real disaster in Nevada and Florida and California and Michigan where prices are not going to recover for a very long time. And the regional banks in those areas, even if they don't fail, will be limping for a very long time. Oh yes, and then there are car loans and credit card loans and student loans that are becoming problematic fast.

And the $700 billion bailout fund, however big it sounds, is not as big as the problems it will try to solve. Fannie Mae and Freddie Mac own some $5 trillion in mortgage-related loans. Private lenders own another $6.5 trillion. Then there are $2.5 trillion in consumer loans (cars, credit cards and so on). And federally insured deposit-taking banks hold loans that total $14 trillion.

So the $700 billion bailout fund represents less than 5 percent of the credit market it is trying to fix. This, to put it kindly, is an ambitious leverage ratio.

And there are more troubles to come. European and Chinese banks still give real cause for alarm. And according to Dealogic, the global investment banking analyst, more than $300 billion of bonds are due to mature before the end of this calendar year. In the next 12 months almost $1.5 trillion of debt is due to roll over, which will not be easily achieved.

Even if the bailout works, the United States is heading into recession. Retail sales are slowing, new car sales are at their lowest in 15 years, and construction is grinding to a halt. Unemployment is going to rise, tax revenues will fall, and more loans will go bad.

And the U.S. Treasury probably has shot its bolt. Another rescue will need more firepower, and there is only one place that it can be found: in some form of international action. The Group of Seven is the obvious place to start, as French President Nicolas Sarkozy has proposed, but its credibility may also need the BRIC countries: Brazil, Russia, India and China. It would make sense to include some of the other big economies with a clear self-interest in keeping the global financial system afloat, like Mexico, Australia, South Korea, Saudi Arabia and the other states of the Gulf Cooperation Council.

Between them those countries command $45 trillion of GDP -- more than 80 percent of the world's wealth. If that kind of firepower cannot do the job, all that's left is divine intervention.

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