It is also too soon to assess how long it will take to stabilize the U.S. markets until normal operations can resume, and how far it will be accepted by markets elsewhere.

The immediate risk is that the monstrous and open-ended new levels of debt that the U.S. Treasury is now assuming could undermine the dollar or lower the Treasury's credit rating, or both. Either one would be disastrous; both would be catastrophic.

But the prospect of catastrophe is what brought us to this pass. Last Tuesday Paulson and Federal Reserve Chairman Ben Bernanke met congressional leaders in Washington to explain why they needed to mount an emergency $85 billion loan to rescue the giant AIG insurance group.

The crucial point that Bernanke made that stunned the legislators was that AIG was one of the anchor stocks in the 401(k) accounts in which most Americans keep their personal pension funds. AIG would collapse without the bailout, Bernanke said, and that would leave a large hole in the pensions of tens of millions of American voters. Worse still, it almost certainly would trigger a massive sell-off of American mutual funds and a consequent collapse on the New York Stock Exchange. Catastrophe, Bernanke explained flatly, was staring them all in the face.

Sen. Chuck Schumer, D-N.Y., chairman of the Joint Economic Committee, came out of the meeting saying, "It's heavy, heavy, heavy. But I don't think we've got much choice."

Within 48 hours Bernanke and Paulson were back, explaining that the situation was now even graver, since they were facing a run on the $3.5 trillion money markets, and the degree of panic in the markets meant that they were within hours of a global market collapse. Somebody, and accounts differ who actually said it, used the word "meltdown."

Extraordinary times require extraordinary decisions. The U.S. Treasury is now nationalizing or guaranteeing just about everything in sight: the money market accounts, Freddie Mac and Fannie Mae, AIG and now also the vast and technically incalculable "toxic" securities that the markets would not touch but the Treasury and Fed are now to bring under public ownership in some kind of Resolution Trust Corporation.

We cannot know how this will work out, but two developments appear likely. The first is that we are going to see a great deal more regulation of the financial system by Congress. There are proposals to bring back the Glass-Steagall Act, which was introduced during the Great Depression to set clear dividing lines between commercial and investment banks. The Act was based on the principle that there is an inherent conflict of interest between the granting of credit (lending) and the use of credit (investing). It was only repealed in 1999 when the banks had already found ways to blur the distinction.

Under Glass-Steagall, the commercial (or deposit-taking) banks that served the public were boring and well-regulated and essentially local rather than nationwide utilities. They took deposits and made cautious loans, but never lent out more than 10 times the capital they kept on hand. Investment banks, which served big corporations, were not allowed to take deposits and had rather more freedom to maneuver, but nothing like the free-wheeling and inventive culture that has developed since the 1980s.

Home mortgages were the province of the tightly regulated Savings and Loans, which required at least 10 percent cash down from home buyers and usually would not lend more than 2.5 of a proven annual income. This meant their loans were usually safe, and so were the savings of their depositors. And we all know what happened to the S&Ls in the 1980s when the rules were relaxed, and what has happened to the mortgage system more recently.

After the frightening shocks of recent days, U.S. regulators may well try to return to such a conservative Glass-Steagall system. But it may not be possible, because a new kind of financial animal has emerged, the global mega-bank, many of which are both commercial and investment bank at the same time.

Three new mega-banks were born last week: when Bank of America bought Merrill Lynch; when Barclays of Britain was encouraged to take over the better remnants of Lehman Brothers for a knock-down price; and when Lloyds Bank in Britain was urged to take over Halifax Bank of Scotland. Existing mega-banks include Citigroup (which absorbed Smith Barney in the 1990s), HSBC, BNP Paribas in France, Deutsche Bank in Germany, Switzerland's UBS and JPMorgan Chase, which earlier this year took over the remnants of Bear Stearns.

These mega-banks, which come into the happy category of "too big to be allowed to fail," are not going to be easily dismantled. (Nor would it be fair to do so, when they were pressed by federal officials to come to the rescue of the system by buying up the faltering investment houses like Bear Stearns and Merrill Lynch. If required to shed them by new regulations, the consequent compensation demands and lawsuits would be interesting.)

And new mega-banks are in gestation. The rumored talks between Chinese banks and Morgan Stanley suggest that Beijing is interested in developing such a giant financial entity of its own, rather than use its sovereign wealth funds to invest in Western banks. Russia may do the same. And then there are the hedge funds and the private equity funds, some of them offshore and away from U.S. jurisdiction and eager to take over the risky but potentially highly profitable business of the collapsed investment banks.

In short, without a global agreement, which would have to include China, Russia and perhaps India as well as the Group of Seven countries and Switzerland, it is not clear that new regulations of the Glass-Steagall variety could function effectively. In short, even a trillion-dollar bailout in the United States may not be big or wide-ranging enough in a global economy with footloose finance and mega-banks with an appetite for risk.

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