At 3.23pm Eastern Standard Time yesterday, the House of Representatives voted down the controversial bailout plan that was designed to shore up the US banking industry. This marked a dangerous moment in history. For the plan was not just about saving Wall Street bankers: it was also about protecting the livelihood of millions from a deep economic recession.

The lead-up to yesterday’s debate in Congress was a week of terrifying brinkmanship, as the US Treasury Secretary Hank Paulson struggled to convince Republicans and Democrats that his $700 billion bailout plan was essential to unfreeze the credit markets and hence the financial system. The debate itself was no less nail-biting. The Republicans voted against the Bill in sufficiently large numbers to prompt many Democrats to step back, resulting in the defeat of the plan by 228 votes to 205.

The Republicans who killed the plan yesterday had misread this plan fatally, as simply a lifeboat for fat-cat bankers on Wall Street. In fact, the collapse of the plan threatens all of Main Street, in America and further afield. The repercussions were already beginning to become evident last night as stock markets around the globe plunged. There will have been no clearer signal to Congress of the havoc that it may reap if it does not rescue the Bill in good time.

That a Republican Administration had been prepared to nationalise bankers’ bad debts was extraordinary enough in itself. George W. Bush had found his inner Franklin D. Roosevelt. But there was good historical precedent. As it had done before, Washington decided to put the systemic risks posed by the financial system ahead of niceties about moral hazard.

The plan was ambitious. Henry Paulson, the US Treasury Secretary, intended to nationalise the global risks associated with America’s sub-prime mortgages by setting up a relief fund to buy up the mortgage assets that are poisoning banks’ balance sheets and sowing the distrust that has prevented banks from lending to each other. The intention was to restore liquidity, by removing the “toxic” assets that are clogging up the credit markets and not trading. The paralysis in the credit markets had truly reached crisis point. On Wednesday credit spreads had reached their highest level yet – a measure of extreme market jitters.

The problem for Washington was that all of this seemed far from the daily lives of American citizens. Congressional leaders came hard up against the “no blank cheque” mentality of ordinary Americans already under pressure from the collapse of the housing market and the down-turn in employment figures. Barney Frank, chairman of the Financial Services Committee, put the situation succinctly: “It is hard to get political credit for something that has not yet happened.” This helped Republicans to argue that economic freedom means letting businesses go to the wall, conveniently ignoring the likely consequences. Congressmen of both stripes were also irritated by what they saw as Mr Paulson’s excessive demands for authority. Not everyone was attracted to the idea of Mr Paulson as de facto President.

A second aspect of the problem is that this is 2008, not 1929. Events in global markets move at internet speed. It took more than six months to pass the legislation to set up the Restoration Trust Corporation in 1989, and that was not an election year. This week alone has marked the bailouts of banks in six countries. It took seconds from the congressional vote for the Dow Jones to start falling. The fallout will be felt globally, but the world was looking to America for a solution. If America’s elected representatives do not realise the potential damage they have caused, they need to think again – fast.