As office workers descended into Wall Street’s Subway station on Friday evening at the start of what was to be an unusually humid September weekend, 30 of the world’s most powerful financiers pulled up in chauffeured limousines, like hearses, around the corner in Liberty Street.

As they crawled through rush-hour traffic in downtown Manhattan, the men who control the world’s banking system could guess why they had been summoned to the huge fortress-like headquarters of the New York Federal Reserve Bank. They were there for the opening hand of what one Fed insider called “the world’s biggest game of poker”.

The man who had interrupted their weekends, Henry Paulson, the articulate and unemotional US Treasury Secretary, cut to the chase. “Everybody is exposed,” he said. It was in all their interests to save Lehman Brothers. If the 158-year-old investment bank collapsed, they would all be caught up in the havoc that would be unleashed across the global financial system.

The venue for the meeting, the office of the New York Fed president Tim Geithner, was suitably gloomy. The room, which has a meeting area attached, resembles a Victorian prison on the outside and a vault within – dark, damp and cut off from the outside. Even the windows of adjoining rooms have grilles of wrought iron.

As some of Wall Street’s biggest egos – including John Thain, the gaunt head of Merrill Lynch, and Lloyd Blankfein, the astonishingly well-paid chief executive of Goldman Sachs – settled into their seats, Mr Paulson coldly delivered his second slice of bad news. There would be no federal bailout of Lehman. The free ride was over.

Six weeks away from the presidential election, the US taxpayer would not be funding the rescue of another Wall Street bank. In February, the US Treasury had propped up Bear Stearns with $29 billion of funds in return for JP Morgan Chase acquiring it for next to nothing. Not this time. Washington would not be bankrolling any deal. If there were losses, the banks would have to take them on the chin.

Mr Paulson’s tumultuous term of office will be scrutinised by every economics student in America for decades. Sitting next to him was Mr Geithner, the man who may inherit his mantle in an Obama administration. Mr Geithner, who at 47 could pass for a man in his thirties, speaks very fast, in a low voice, is unexcitable and, it has been said, so expressionless that he could tell an executive his bank was being closed tomorrow in the same tone that he might ask a girl on a date.

Mr Geithner laid out two possible scenarios. The first, that the banks agree to support Lehman while it was dismantled, in an orderly way, over the next few months. The second was that Lehman pool $85 billion of its dodgiest assets into one fund – nicknamed “the bad company” – into which the group of 30 would inject $35 billion of their own money to prop it up.

Purging the Lehman books of their toxic mortgage-backed securities, Mr Geithner argued, then free the way for another bank such as Bank of America, or Barclays, to buy the “good company”, such as Lehman’s investment banking business. A few asked questions. No one showed their hand. By 8pm, the meeting was over, but Mr Paulson and Mr Geithner worked on into the night.

At the same time, another set of talks had been taking place. Over the course of Thursday and Friday, both Bank of America and Barclays had spoken to Dick Fuld, the chief executive of Lehman. Both had expressed an interest in buying part of his bank. Mr Fuld had realised on Wednesday, as he addressed Wall Street analysts on a conference call, that his luck had run out and that he must try to find a buyer within days.

With no firm asset sales to announce, no new capital, the share price had halved in three days, already down more than 90 per cent on the year. Wall Street, scared of the bank’s exposure to mortgage-backed debt – it had more than $30 billion of commercial real estate assets on its books alone – began to call time.

However, both Barclays and Bank of America wanted the same thing – they would not acquire any of Lehman without federal money.

The group of 30 were summoned again on Saturday to try to bash out a deal. Their arrival did not bode well. The fleet of black limousines carrying their chino-wearing executives managed to cause a traffic jam in the narrow streets of the financial district.

As the meeting kicked off, many of the executives asked why they should bail out a competitor who had made bad investment decisions. They also questioned why they were being picked on to fund a bailout when other Wall Street firms such as hedge funds and pension funds had not been approached. John Mack, chief executive of Morgan Stanley, grumbled that if they bailed out Lehman this weekend, would it be Merrill Lynch next: “If we’re going to do this deal, where does it end?”

Things began to fall apart. Mr Paulson dug his heels in over offering federal money, and by early evening Bank of America had walked away. Ken Lewis, its chief executive, was off to launch a separate gamble. Unbeknown to the other bankers, he called John Thain, his opposite number at Merrill Lynch, to offer $50 billion to take it over.

His withdrawal from the table left one player to buy Lehman Brothers. Bob Diamond, the American head of Barclays’ investment arm, wanted to seize the franchise, believing that he could do so for next to nothing. His interest was frowned on in London.

Already weakened by Barclays’ exposure to the credit crisis, many in the City – and some on Barclays’ board – believed Mr Diamond to be too rose-tinted in his view of the market, and too gung-ho. Known for being cocky, the unfeasibly white-toothed Mr Diamond has built an admirable investment empire, running his own show within the bank.

However much his own man, Mr Diamond was not allowed to buy the bank without going to a Barclays’ shareholder vote, a move that could take weeks. In addition, Mr Paulson expected Mr Diamond to accept open-ended liabilities for Lehman in return for the rock-bottom price. By lunchtime on Sunday Barclays, too, had walked away and by three o’clock, according to one insider, “everyone had gone home”.

But the group of 30 were not the only bankers at work on Sunday. With the collapse of Lehman now inevitable, traders across New York, the City and Canary Wharf had been ordered back to their desks to try to calculate their bank’s exposure. In Lehman’s Manhattan headquarters, by now surrounded by television cameras, workers collected their belongings and left for the last time.

As Wall Street awaited the final death knell of Lehman, Mr Thain, the cold chief executive of Merrill Lynch, revealed that he and his board had agreed to the Bank of America takeover.

The deal was a coup – after Lehman, Wall Street would have turned on Merrill as the next casualty to fail under the weight of its property-backed assets. Under this deal, Merrill would be cushioned by Bank of America’s huge deposits.

As Mr Thain counted his blessings – and his potential $9.7 million pay-off – Mr Fuld announced just before midnight that the game was over and that the bank was bust.

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