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Who was to blame for the collapse of Lehman Brothers? The UK it seems, according to former US Treasury chief Hank Paulson who has repeated his accusation that the UK “screwed” the US over the rescue of the failed financial giant.

In his new book - On the Brink – Paulson says that Barclays negotiated to buy Lehman during the weekend before the bank’s collapse, but the talks fell apart after both countries put up obstacles to a rescue deal. In the end Barclays bought Lehman out of Chapter 11. “The British screwed us,” Paulson recalls as his reaction to the news. 

Paulson writes of his irritation that Chancellor Alistair Darling, and the Financial Services Authority (FSA) insisted that the US should guarantee Lehman’s toxic assets — a guarantee that the US Treasury refused to give. The FSA also declined to waive Barclays’ responsibility to put the purchase to a shareholder vote.

A potential government bail-out of Lehman was considered, according to Paulson. “If a Bear Stearns-style rescue was the only option, we would take it,” he writes. But Lehman had overvalued its assets by at least $37 billion, meaning the central bank couldn’t legally make a loan. “The toxic quality of Lehman’s assets would have guaranteed the Fed a loss,” Paulson noted.

Paulson also tells readers that Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest US mortgage-finance firms. He says he was alerted to the plot while attending the Beijing Summer Olympics. According to Paulson, the Russians made a “top-level approach” to the Chinese “that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies.”

In an interesting insight into how policy was formulated during the crisis, Paulson – a devout Christian Scientist - reveals that his wife urged that he should “rely on Him” and together they read the Second Book of Timothy, Verse 1:7, “For God hath not given us the spirit of fear, but of power, and of love, and of a sound mind”. Once that was done, Paulson called the White House to alert the President that the bank was about to go bust.

“Christian Science has always been a big influence on me,’’ he writes. “It is a religion based on a loving God, not a fearsome one. An authentic confidence comes out of this. You understand that you have a great capacity to accomplish good that comes from God.”