By ANTHONY ROWLEY, TOKYO CORRESPONDENT

CONGRESS continues to wrangle furiously over whether or not to stump up US$700 billion to help salvage at least something from the mess that was the US financial system and if the second vote due yesterday approves the package, markets will no doubt celebrate. Let them enjoy the moment while they can because even this seemingly large sum of money is a drop in the ocean of what is likely to be required of governments (taxpayers) before the crisis is resolved.

Here are a few figures to support my argument. The sum that Congress is talking about is, obviously, not even US$1 trillion - US$0.7 trillion to be precise.

Yet, the total amount of funds under management on a global basis is estimated at US$50 trillion. Total financial derivatives transaction (before the sub-prime crisis began) were estimated by the Bank for International Settlements (BIS) to be a multiple of this, of which US$60 trillion were in the form of unlisted and unregulated derivatives.

It would be astonishing indeed, given the speed and scope of the financial system meltdown in the US and elsewhere if at least a part of these colossal financial exposures were not to go bad, in addition to all of the sub-prime and the mortgages that have already collapsed in value, taking a lot of collateralised debt obligations with them. Not all of these amounts are, of course, US obligations but a very large part of them are.

According to Jeffrey Garten, a prominent economist who teaches nowadays at the Yale School of Management, total global assets (including, presumably real estate) have grown to exceed US$200 trillion. This is roughly equivalent to four times global annual GDP, which, as he points out, shows how financial wealth creation has far outstripped both gross domestic product and world trade growth.

In other words, we have created a monster that threatens to devour the global economy in which it exists.

For perspective, let me quote part of an Investment Round Table which BT published shortly before the latest and most virulent phase of the sub-prime crisis erupted.

In this, investment guru Marc Faber commented that 'right from the start my estimate of the losses was about US$1 trillion in the US alone'.

However, he added, 'if we add the losses from a decline in housing wealth and stock market wealth the losses are a multiple of that.' William Thomson, a former vice-president of the Asian Development Bank and now head of several investment firms, was more dire. In the US alone, he suggested, 'we could be looking at US$6 trillion in mark downs of housing wealth, US$3-4 trillion in stock market losses if we get a 25-35 per cent mark down in the market - it could be worse - and then we have the losses of the banking system. So we are talking about possibly US$10 trillion as compared with a GDP of US$13 trillion. Proportionally, I would expect the UK to suffer similarly.'

Ernest Kepper, a former senior official at the International Finance Corporation suggested that, 'overall, the fallout could easily be in the many trillions of dollars. No one really knows. But if we add expected losses to those already declared we can expect (the total to be) easily US$2-3 trillion.' Huge losses, he said, are looming in equities, consumer debt instruments (such as car loans, credit cards and student loans which have also been repackaged and sold as asset-backed securities), corporate bonds and, specialised insurance companies which guaranteed bonds and mortgages to collateral mortgage instruments.

The clear implication of all this is that US authorities are going to have to stump up far more money than US$700 billion (even if they agree to that) by the end of the day. It is not their money of course. Either the US taxpayer will have to pay (during an economic recession) or the US Federal Reserve will have to print more money - a great deal of it - in which case the US could see either hyper-inflation or a final collapse of the dollar, or both.

This is not (as some people continue, rather naively, to believe) just a US problem. The exposures of financial institutions elsewhere - Europe, Asia, Latin America, the Middle East, Russia and so on - are only now beginning to show up and national authorities in these countries are clearly going to have to follow the US lead in forming (separately or collectively) resolution trust corporation-type institutions, probably on a scale unparalleled in history.

Temporarily suspending mark-to-market requirements on banks and other financial institutions in respect of the valuations they put on assets can only buy time because those assets will almost certainly take a very long time to recover. And the global ban on short-selling of stocks likewise serves only to delay the day of financial reckoning. Crises have a way of breaking out where they will and the next eruption threatens to come in a wholesale flight from hedge funds.

For the moment, central banks are preoccupied with supplying liquidity to keep the payments system among financial institutions and market from seizing up. This is the easy part. What comes next is the much more difficult task for national authorities of establishing asset management companies on a scale large enough to absorb not just US$700 billion but almost certainly many trillions of dollars. It will be a very tough task politically but the alternative - a global systemic financial crisis - is too horrible even to contemplate

This article was first published in The Business Times on October 2, 2008.