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Henry “Hank” Paulson, the former US Treasury Secretary, has admitted that he was wrong to accuse Britain of ruining the rescue of Lehman Brothers.

In On the Brink, Mr Paulson’s memoir about the 2008 financial crisis, published this month, the veteran banker-turned-official recounted the tense
discussions surrounding Barclays' attempted acquisition of Lehman as the
Wall Street investment bank teetered on the brink of bankruptcy.

Mr Paulson wrote that when he learnt that the rescue deal had fallen apart, he blurted out in front of a room full of Treasury colleagues: “The British
screwed us”. Lehman filed for Chapter 11 bankruptcy protection on September
11, 2008.

At a speaking engagement in New York last night, however, Mr Paulson said that he wished he had not made the comment.

“We were turning over every stone, Barclays had been the last stone, they were our last hope,” he told the audience at the 92Y community centre in
Manhattan.

“It was frustration. But I don’t know if the situation had been reversed and I was the British, I don’t know how I would have acted. You can’t walk in
another person’s shoes, so I shouldn’t criticise them. I did, but I
shouldn’t have.”

Barclays negotiated to buy Lehman during the weekend before the bank’s collapse, but Alistair Darling, the Chancellor of the Exchequer, and the
Financial Services Authority (FSA) were reluctant to approve the sale
without a US guarantee of 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.

Mr Paulson, a devout Christian Scientist, recounted at the 92Y how his “stomach just tightened” when he and Timothy Geithner, then the president of
the Federal Reserve Bank of New York, received the phone call from Britain
to inform him that Barclays would not be able to buy Lehman, and he prepared
to tell his staff that the investment bank would fail.

“I went out of the office with my cell phone and called [my wife] Wendy and asked her to pray for me,” Mr Paulson said.

The former Treasury Secretary, who before joining the Bush Administration was the chief executive of Goldman Sachs, vehemently rejected accusations that
he “played favourites” with his old Wall Street rivals in choosing to save
Bear Stearns earlier in 2008 by orchestrating the bank’s sale to JPMorgan
Chase but allowing Lehman to go bust.

“There’s one firm that died and I certainly didn’t want them to die,” he said. “I don’t think we could have worked any harder over many months to try to
prevent that from happening.”

Mr Paulson, who created America's controversial $700 billion (£450 billion) bailout fund, said that his inability to put Lehman into an orderly
administration underlined how vital it was that Congress developed financial
reform legislation that creates a resolution authority to dictate the
wind-down of too-big-to-fall banks.

“That’s one of the misconceptions out there, that we had some authority or power out there that we didn’t use [to save Lehman],” he said.

Chris Dodd, the chairman of the Senate Banking Committee, is expected to reveal a financial reform Bill next week but it is likely to be months
before US lawmakers agree on the legislation's final form, despite President
Obama urging them to hurry the process.

Mr Paulson also reiterated last night how close Morgan Stanley came to collapse amid the meltdown of US financial markets.

“Morgan Stanley was really on the edge, it was as close as any institution can be to going [bankrupt] without going [bankrupt],” he said.

Morgan Stanley eventually won funding from Japanese investors and, with a $10 billion bailout, survived the credit crunch.

Mr Paulson said that he understood public anger at bankers’ huge compensation packages.

Goldman Sachs, which took a $10 billion bailout, has borne the brunt of fury over multimillion-dollar bonuses paid to workers in companies that accepted
taxpayers' rescue cash. This month the bank announced that its chief
executive, Lloyd Blankfein, would receive a $9 million, all-share bonus for
2009, far below the $68 million that he took home two years earlier.

Mr Paulson said: “Compensation in parts of the industry has always been hard to explain. Even in the good times it’s out of whack.”

He tacitly acknowledged that the poor public opinion of the banking industry was deserved.

“It pains me to see the industry viewed this way and of course it’s viewed this way for a reason,” he said.

Asked what advice he would give Mr Blankfein and other current Wall Street bosses, Mr Paulson said: “You need to not only obey the letter of the law
but look to do what’s right.”