Alistair Darling has been accused by Henry Paulson, the former US Treasury Secretary, of double-crossing America when he effectively vetoed the acquisition of Lehman Brothers by Barclays Bank in September last year.

According to an exclusive extract from Andrew Ross Sorkin’s new book, Too Big To Fail: Inside the Battle to Save Wall Street, published in The Times today, Mr Paulson told bankers that the Chancellor had “grin-f******” the US after London refused to waive legislation that would have allowed Barclays to save the Wall Street bank.

The book — which is published in the UK today — details the final hours leading to the collapse of one of the world’s biggest banks during one weekend in September last year.

The demise of Lehman Brothers in 2008 was widely seen as a tipping point that triggered the world’s biggest economies’ descent into recession.

While the US Government had been adamant it would not use American taxpayer money to bail out the Wall Street bank, regulators on both sides of the Atlantic dramatically underestimated the extent to which the bankruptcy of the lender could pull other banks down with it.

According to Mr Sorkin’s book, one banker involved in the talks that could have saved Lehman Brothers said in disbelief of Britain’s behaviour: “Isn’t this our closest ally in the world?”

Mr Sorkin, an award-winning business writer for The New York Times, and columnist, reveals how the proposed rescue deal by Barclays to save Lehman was aborted on the afternoon of Sunday, September 14 last year.

The collapse of the proposed acquisition came amid missed transatlantic phone calls and accusations from the Financial Services Authority that America had failed to keep the UK abreast of developments.

His book details how the US discovered that Barclays would need Alistair Darling to waive key legislation for any deal to go ahead only in a tense phone call between Christopher Cox, the chairman of the Securities and Exchange Commission, and Callum McCarthy, the former head of the FSA, during the September weekend.

Mr Paulson, the former head of Goldman Sachs whose own memoirs covering the collapse of Lehman Brothers will be published in January, had said at the time that he was anxious that the Wall Street bank was rescued because “I don’t want to be left here holding Herman” — a lewd American reference.

According to Mr Sorkin’s book, the reason Barclays’ deal to buy Lehman collapsed was that the Americans did not realise that both Mr McCarthy and Mr Darling needed to have certain criteria met before any UK acquisition of the failing bank could be completed.

Those criteria included a quid pro quo financial commitment from the White House to mitigate the risk of acquiring Lehman, a commitment that Mr Paulson was not prepared to make. Mr Darling was also fearful that Barclays had not conducted adequate due diligence on Lehman Brothers and that the US bank’s toxic assets could infect the rest of the British banking system.

During a telephone conversation on the Sunday between Mr Paulson and Mr Darling, the Chancellor said that he did not want to “import our [America’s] cancer”, according to Mr Paulson.

The book also says that the former Treasury Secretary wondered aloud “if President Bush should call Gordon Brown personally, but almost before finishing the question, he answered it himself. ‘There’s no chance,’ he said, explaining that he thought that Darling had implied he had already spoken to Brown about the situation. ‘He was so far away from, ah, wanting Barclays to do anything,’ he remarked of Darling”.

A spokesman for Mr Paulson was unavailable for comment. According to Mr Sorkin, Timothy Geithner, then President of the New York Federal Reserve, took only a moment to conclude that Lehman should immediately prepare for bankruptcy.

A UK Treasury source said last night of claims that Mr Darling had said he did not want to “import” America’s cancer: “That is categorically untrue. He did not say that. We’ve been asked that a lot. That may have been what Hank Paulson chose to describe it as, but that’s not Alistair’s words.”

The source explained that the reason that the Barclays deal did not go ahead was that “there were lots of unanswered questions — from the UK from a regulatory perspective — including taxpayer support. Given the risk to the British taxpayer, that’s why we continued asking tough questions and didn’t get clarity.”

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