$700 billion = drop in the bucket.

From the Wikipedia entry: Credit Default Swaps
In the US, the Office of the Comptroller of the Currency reported the notional amount on outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March, 2008. (To put these numbers in perspective, the CIA World Fact Book estimated the US GDP for 2007 was $13 trillion.)

So the problem is potentially bigger than our entire GDP? Hmmm, that's a pickle. And:

The Bank for International Settlements reported the notional amount on outstanding OTC credit default swaps to be $42.6 trillion in June 2007, up from $28.9 trillion in December 2006 & $13.9 trillion in December 2005. By the end of 2007 there were an estimated US$ 45 to 62.2 trillion worth of Credit Default Swap contracts.

On the one hand its only like 3% of the mortgages have defaulted; on the other hand 3% of $45 trillion is a big ass number! Surely they'd tell us if the problem was this huge, right? (Bra ha ha!) Its not impossible that we truly are on the brink of ruin but I doubt it. The US government is still (uh, hopefully) big enough to eat this loss and digest it whereas no Wall Street entity could survive this gorging. Now the Treasury has to buy up the bad debt, make it disappear from balance sheets around the world and absorb it for a year or two so that everyone else can go back to overvaluing their homes and other assets with dubious derivative schemes. The US rides in to suck up the black hole and splash around some money so that banks that don't want to lend any more will get in a giving mood.

It seems to me that dumping huge infusions of cash (as if from a helicopter) into the economy would lower interest rates and currency values raising gold and oil prices but I guess the lack of liquidity is more of a problem. Oh! And none of this raises home values! So the price to be paid will be after the housing market works itself out. Until then you can pretty much count on higher commodity prices, negativity nabobs all over your TV and another 'economic stimulus' package in spring 2009.