The Cabinet Room in the White House has been the scene of some tense moments since it was rebuilt during the renovation of the West Wing by President Franklin Roosevelt in 1934, in the midst of the Great Depression.

John Kennedy spent long hours there during the Cuban missile crisis as the world seemed to be hurtling towards nuclear war. President Bush convened his first Cabinet meeting in the white-stuccoed room after the terrorist attacks of September 11, 2001, beneath the sombre gaze of busts of Jefferson and Franklin.

But not since the days of FDR himself has there been such a high-stakes gathering with so many potentially far-reaching implications for the tottering global economy as the remarkable and contentious meeting that unfolded there on Thursday afternoon.

It was supposed to be not much more than a photo-opportunity, a demonstration of national unity in the face of economic crisis. There, for the first time in anyone’s memory, the incumbent President was meeting the two candidates battling to succeed him, together with the entire leadership of the Senate and the House of Representatives. The aim was to conclude the week-long deliberations over the plan announced by Hank Paulson, the Treasury Secretary, for a $700 billion bailout of the nation’s banks and to get legislation through Congress by the weekend.

When the photographers had been dismissed, President Bush spelt out what was at stake. According to senior advisers briefed on the detail of the meeting, he told the assembled leaders that it was not just the US financial system that was in peril. He made it clear that the entire architecture of the global economy was at stake.

The US’s financial credibility was in jeopardy. If a deal were not concluded to back the bailout, there was a chance that global investors, including central banks around the world, would lose faith and begin selling their huge holdings of US government debt. That would send US interest rates through the roof and produce a Latin American-style run on the dollar.

Underscoring the seriousness of that threat, earlier in the week David McCormick, the senior Treasury official for international policy, had been dispatched to Asia, to reassure the Chinese and others that US credit was good and urging them not to dump Treasury bonds.

When the President concluded what was described as a dire prognosis, there were general murmurs of support. Democrats around the long mahogany table, led by Barack Obama, the party’s presidential candidate, concurred with the general assessment. Some noted that they had been given a similar assessment by their own economic advisers, such as Larry Summer, Treasury Secretary in the Clinton Administration.

But as the meeting seemed to be moving swiftly towards a sombre consensus, there was a bombshell.

John Boehner, the slim, chisel-jawed, 58-year-old leader of the House Republicans, had been listening with evident irritation. Now he spoke up to denounce the Paulson plan. Mr Boehner and his party colleagues had been deluged all week with angry calls from constituents protesting at what they saw as a huge taxpayer giveaway to undeserving Wall Street bankers. He told the gathering that he and his colleagues could not support the plan and produced one of their own.

The plan did not seem to have been all that well thought through, according to some who saw it. It was an odd mix of half-baked proposals to deal with the financial crisis and the usual Republican menu of tax cuts. Its centrepiece, a rough-and-ready plan to force banks to pay for insuring their assets against possible losses, looked as if it had been “cut and pasted from some comments by an economist on the Financial Times website”, according to one who saw it.

A Republican involved in the negotiations said: “It was not a serious plan. It was irresponsible and unhelpful and driven more by politics than by a desire to solve the financial crisis.”

Mr Paulson politely explained that its main idea was unworkable. But as the temperature in the room rose sharply, Mr Boehner pressed on, backed by his colleague, Richard Shelby, the leading Republican on the Senate Banking Committee. As voices rose in anger, Barney Frank, the Democratic chairman of the House Financial Services Committee, asked him angrily why he had not spelt out his plan earlier.

As the meeting seemed to be breaking up in disarray, the focus of administration turned to Nancy Pelosi, the Democratic House Speaker. Numerically speaking, with a big Democratic majority, Mrs Pelosi already had enough votes to pass the plan. With a big majority assured in the Senate, why did she not just press ahead, she was asked? The whole deal could be done without the House Republicans.

But Mrs Pelosi would not take the political risk of passing a potentially unpopular measure with only Democratic support, leaving Republicans free to attack her and her colleagues in the campaign for congressional elections to be held in little over a month.

Mr Paulson, a former chief executive of Goldman Sachs, perhaps showing the strain of what must have been the worst week of his professional life, pleaded with Mrs Pelosi, the daughter of a trade union leader, to reconsider.

He half-jokingly went down on bended knee and clasped his hands as if in prayer. “I didn’t know you were a Catholic,” Mrs Pelosi, a Catholic herself, quipped to the normally undemonstrative and austere Mr Paulson, a Christian Scientist.

An agitated Mr Bush said, as the meeting finally unravelled: “If money isn’t loosened up, this sucker could go down.”

Sitting almost completely silent throughout was John McCain, the Republican presidential candidate. As his poll numbers had fallen in the middle of the worst economic crisis in a generation, he had calculated that he needed to do something to rescue his campaign.

He had gambled that by suspending the campaign and heading to Washington, he would be able to take the credit for helping to negotiate and breaking the deadlock in a bailout deal. His economic advisers are uncertain about whether the Paulson plan will have much positive effect. They think a better plan would be to use taxpayers’ money to put capital directly into the banking system. But they also realise there is no time to construct a different plan and that while Mr Paulson’s proposal may not be perfect, failing to have any plan would be worse.

So Mr McCain spent yesterday morning in Washington trying to persuade Republicans to sign up to a modified version of the plan, before he headed belatedly to the first presidential debate, in Mississippi.

It is still possible that the Republican candidate will get credit for his intervention. But this week’s remarkable events in the still unfolding and deepening financial crisis underline how much faith now rests in the ability of policymakers and politicians to save the US and the world from an economic disaster greater than anything we have seen in the past 60 years – and how fragile that faith is.

As President Bush made clear at that fateful meeting, US officials are deeply anxious that it is not just the fate of banks that is in the balance but the stability of the global economy. The risk of a flight from the US dollar has risen sharply and Washington needs to reassure an anxious, watching world that it can control the chaos.

But the politics are perilous. Using taxpayers’ money to support wealthy bankers who got themselves into their own mess is not popular. As this week’s events showed, the temptation for Republicans to seize the chance to score political advantages is powerful.

It is not even clear that the Paulson plan does represent the salvation that some of its backers claim for it. The US financial system has, in effect, dried up this week. The Administration’s proposal, even if it passes this weekend in some form, will not necessarily immediately reliquefy these markets.

Until it becomes clear how large the losses in the financial system are, fear will continue to deter investors from putting their money at risk. But it is the only feasible plan on the table and for now, at least, America’s shaken leadership has staked everything on it.

It might have been a characteristically inelegant way to put it, but Mr Bush was surely right. Without help from Washington, this sucker really is going down.

What the big players are really thinking
By Tom Baldwin

President Bush
The economy was for so long about the only policy area that went right for him but now it is falling apart. After bypassing free market instincts to back the effective nationalisation of financial institutions, he is desperate to force a deal with the conservative Republicans on Capitol Hill who were once his strongest supporters

John McCain
He has sought to reset the election race by throwing himself helter-skelter into the delicate bailout negotiations. Democrats accuse him of putting his political interests before those of the country

Barack Obama
He cautiously supported some form of intervention while setting conditions that might distance him from the deal’s most unpopular aspects

Henry Paulson
The US Treasury Secretary is asking Congress to hand him unprecedented control over a staggering sum of money in the biggest game of poker ever played. No wonder he is on his knees begging for their support

Nancy Pelosi
The Speaker of the House of Representatives is a partisan Democrat who will do anything she can to help Obama to win. She has the votes to pass this deal without the Republicans but is determined not to be left holding Bush’s ugly bailout baby on her own

John Boehner
The Republican minority Leader in the House of Representatives has a divided and terrified base. Some think he is trying to save McCain’s skin. The truth is that he is more interested in his own

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