If we do the $700 Billion bailout, doesn’t the game start up again?
Yep. It's called "moral hazard". If this situation does not end up with everybody who touched derivatives losing their shirts, to the extent that the next smart young guy who brings up the subject of derivatives trading being immediately fired, then we will have this happen again.
Yes, derivatives are fun, and can potentially produce high returns. But no institution upon which the financial system depends, like banks and insurance companies, may be allowed ever again to be associated with them.