Moscow secretly tried to instigate Beijing to the financial war against the U.S.

Russia proposed to China that the two nations should sell Fannie Mae and Freddie Mac bonds in 2008 to force the US government to bail out the giant mortgage-finance companies, former US Treasury secretary Hank Paulson has claimed.

The allegation is in his memoir On the Brink in which he also suggests that Alistair Darling, the UK chancellor, blocked a rescue takeover of Lehman Brothers by Barclays Bank when he refused to support special treatment by UK regulators.

Paulson said that he was told about the Russian plan when he was in Beijing for the Olympics in August 2008. Russia had gone to war with Georgia, a US ally, on August 8.

"Russian officials had made a top-level approach to the Chinese, suggesting that together they might sell big chunks of their GSE holdings to force the US to use its emergency authorities to prop up these companies," he said.

Fannie and Freddie are known as GSEs or government sponsored enterprises.

"The Chinese had declined to go along with the disruptive scheme, but the report was deeply troubling," he said. A senior Russian official told the Financial Times that he could not comment on the allegation.

Separately, Paulson makes it clear that he believes that Darling prevented a takeover of Lehman by Barclays out of fear that it would endanger the UK bank.

Paulson said that Darling telephoned him on Friday September 12 - as the US authorities were scrambling to find a buyer for Lehman - to express concern about a possible Barclays deal. Paulson said that he did not realise at the time that this was a "clear warning".

He was stunned to discover on Sunday September 14 that the UK Financial Services Authority would not approve the merger on an accelerated timetable or waive the requirement for a shareholder vote.

Tim Geithner, then president of the New York Fed, called Callum McCarthy, the head of the UK's Financial Services Authority, to ask him to waive the vote requirement.

"But the FSA chief put the onus on Darling, saying that only the chancellor of the exchequer had the authority to do that," Paulson said.

He said that Darling "made it clear, without a hint of apology in his voice, that there was no way Barclays would buy Lehman". Lehman filed for bankruptcy the next day.

Source: Agencies