Henry Paulson, the US Treasury Secretary, has been learning how to sell since he joined the Chicago office of Goldman Sachs in 1974. At 7pm on Thursday in Washington, he prepared to make the sale of his career.

Faced with congressional leaders, he began to explain why Washington’s lawmakers should nod through, without questions, the biggest bailout of America’s banking system since the Great Depression.

After a 45-minute meeting with President Bush, Christopher Cox, chairman of the US Securities and Exchange Commission, and Ben Bernanke, Chairman of the Federal Reserve, Mr Paulson addressed senators from his own Republican Party and the Democrats to spell out the consequences if they delayed, or blocked, a Wall Street rescue that by his own admission would cost the American taxpayer hundreds of billions of dollars.

Mr Paulson said that unless Washington created a mechanism for America’s banks to dump billions of dollars’ of toxic mortgage-backed securities, the lack of confidence in the US financial system would threaten individual savings accounts.

Barney Frank, the head of the Senate Financial Services Committee, a Democrat, supported Mr Paulson, saying that they could, in theory, vote on it as early as next week. He said: “They said they would like legislation to do it, and there was virtually unanimous agreement that there would be legislation to do it.”

As the market fretted over the future of Fannie Mae and Freddie Mac, the collapse of Lehman Brothers on Sunday, the nationalisation of AIG and then the sell-off on Wall Street on Tuesday and Wednesday, Mr Paulson and his team had been studying a structure of how to buy up distressed assets from America’s biggest banks.

The plans had remained private until Thursday for fear that a bailout, which requires legislative approval, would meet with resistance from the Democrat-dominated Congress. Over the past few weeks, Mr Paulson had also come under pressure from Lawrence Summers, his predecessor at the Treasury, and from Paul Volcker, the former head of the Federal Reserve, to find a comprehensive way of stopping the rot spreading.

While the details of the bailout are still not known, Wall Street believed that it would work, anyway. As rumours of the Treasury plan leaked on Thursday, stocks on Wall Street soared by more than 560 points, clawing back 90 per cent of the previous day’s losses.

Mr Paulson said that he would spend the weekend securing the final support of lawmakers from both parties for the terms of the bailout. It is believed that he wants to create a federal-backed investment vehicle into which banks can sell their mortgage-backed bonds at a sharp discount.

The means of valuing such assets remains unclear: it is believed that the Treasury is reluctant to allow the bailout process to be delayed by a row between the banks and the Government over how much they will pay, so the proposal of some form of auction has been suggested.

Democrats are thought to be pushing for the rescue deal to force the banks to renogotiate the terms of adjustable rate mortgages to troubled borrowers to help them to remain in their homes. As payback for the bailout, the banks would cover the cost of reducing the rate on such mortgages.

Mr Paulson hopes that by creating a financial landfill for the mortgage-backed bonds, banks will no longer be suspicious of each other’s exposure and will start lending again.

The former chief executive of Goldman Sachs is trying to sweeten the pill to lawmakers by suggesting that once the market recovers, the US Government could start to sell the bonds back into the market.

By Friday morning, as stock markets across the world rallied, on the promise of the bailout, other measures emerged. The Federal Reserve is also to buy up to $69 billion (£37 billion) of short-term debt issued by Fannie Mae and Freddie Mac to protect the discount note market.

At the same time, the Treasury unveiled a temporary plan to guarantee US money market funds, long perceived as safe-haven investments. Mr Paulson said that Washington would use $50 billion from the Treasury’s Exchange Stabilisation Fund to insure the funds, which must, in turn, pay a fee to take part in the programme.

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