First came the imperial marching music and a fiery explosion. "You've watched snippets of them for days, or meant to after your friends sent you the link," a voice boomed with mock gravity. "Tonight, the week-long feud of the century comes to a head."

It was a comically absurd drumroll for what, on the surface, was merely a squabble between TV presenters. In one corner, Jim Cramer, the closest thing to a celebrity in American financial journalism. In the opposite corner, Jon Stewart, the satirist and host of the fake news programme The Daily Show on Comedy Central. But unlike many a big fight, this one more than surpassed the hype. Nothing less than financial reporting itself was put on trial – and found severely wanting.

Cramer, who dispenses raucous advice to investors on the Mad Money show on the business channel CNBC, was eviscerated by a serious and genuinely angry Stewart. Meek and contrite, Cramer was pummelled like a rope-a-dope over his profession's failure to be an effective watchdog of Wall Street. There was no cornerman to throw in the towel.

The interview was one of those classic television moments that crystallised the public mood in the credit crisis. Stewart articulated the anger and bewilderment of millions of Americans who now feel ripped off and afraid. He framed the question everyone wanted asked: how were the financial masters of the universe allowed to pursue their ruinous behaviour unchallenged for so long?

It caught the attention of the White House, prompted a frenzy among bloggers and soul-searching in the media, which failed to spot the biggest story of a lifetime or warn the public until it was too late. Indeed, CNBC and other supposedly objective journalists stood accused of complicity with big business, belonging to a cosy coterie that egged on company chief executives and fanned the flames of excess.

The interview has also burnished Stewart's reputation as the last best hope in the media when it comes to, in the earnest phrase of news network CNN, "keeping them honest". It was this comedian who, like a court jester, told uncomfortable truths about the Iraq war when the mainstream media was playing cheerleader. Now, as the financial apocalypse unfolds, it is Stewart again who is scything through the herd mentality and culture of deference.

James Moore, a former TV news correspondent and co-author of the bestseller Bush's Brain: How Karl Rove Made George W Bush Presidential, blogged on the Huffington Post: "I am inclined to wonder if there is a line somewhere in the Book of Revelation that proclaims 'And a comic shall lead them'. Jon Stewart has set new standards for both comedy and journalism on television.

"Oddly, he was originally supposed to just make us laugh on Comedy Central. He's done that, quite proficiently, but Stewart has also figured out that some jokes are sad as well as too important not to tell. But he's not supposed to be doing the job of reporters."

For years Stewart has been building a reputation as the one-man antidote to what many regard as bland and talk-heavy US news channels. As Barack Obama, John McCain and other politicians queued up to appear on The Daily Show, a headline in the New York Times asked: "Is Jon Stewart the Most Trusted Man in America?"

His assault on Wall Street began in earnest with a classic Daily Show technique: a series of juxtaposed clips revealing incompetence and hypocrisy. First there was Rick Santelli, a CNBC reporter who tried to strike a populist chord by launching a sudden rant on a trading floor. Stewart, unimpressed, forensically dissected the channel's past mistakes, in which it made exuberantly bullish statements about the market and various investment banks shortly before they collapsed. Stewart added: "If I only followed CNBC's advice. I'd have a million dollars today – provided I'd started with $100m."

Such is his influence, in the next days ratings for Mad Money went down 10 per cent in the 25-to-54 demographic. But Cramer, a former hedge fund manager, is not one to take barbs lying down. He declared war with the sarcastic riposte: "Oh, oh, a comedian is attacking me! Wow! He runs a variety show!"

Stewart aired still more clips of Cra­mer advising his viewers to pile into Bear Stearns shares in the weeks before the bank collapsed, rendering them worthless. As the media stoked up the row, the date was set for a "facedown" last Thursday. Stewart showed the attack-dog interviewing instincts of a Humphrys or Paxman. He charged that people at CNBC knew what was going on behind the scenes on Wall Street but failed to tell the public. He accused CNBC hosts and pundits of abandoning their journalistic duties and acting like cheerleaders for the market.

Cramer proffered feeble mea culpas and acknowledged that they could do better. But the merciless Stewart produced damning footage of a 2006 interview with TheStreet.com, in which Cra­mer described, in a positive way, certain barely legal things a hedge fund manager might do to work the market to his advantage. Stewart pressed: "I understand you want to make finance entertaining. But it's not a game. And when I watch that, I can't tell you how angry that makes me."

He launched an eloquent assault that struck at the very foundations of American financial press and television. "You knew what the banks were doing, yet were touting it for months and months – the entire network was," he said. "For now to pretend that this was some sort of crazy, once-in-a-lifetime tsunami that nobody could have seen coming is disingenuous at best, and criminal at worst."

The interview became an online sensation that reached the White House. Press secretary Robert Gibbs said he has spoken to President Obama about watching the Stewart-Cramer showdown. "Despite, even as Mr Stewart said, that it may have been uncomfortable to conduct and uncomfortable to watch - I thought somebody asked a lot of tough questions," the spokesman said.

Insiders at CNBC have acknowledged the episode was a public relations disaster. A day after his public thrashing, Cramer declared that, "although I was clearly outside of my safety zone, I have the utmost respect for this

person and the work that they do, no matter how uncomfortable it was".

Now the media has finally been forced into introspection. Andrew Leckey, a former CNBC host and now president of the Donald W Reynolds National Center for Business Journalism at Arizona State University, said: "In a tremendous boom period, they covered the boom and people wanted to believe in the boom. They didn't uncover the lies that were told to them. Nobody did. But they should be held to a higher responsibility."

Britain has had its own satirical news in the shape of the The Day Today and the long-running Have I Got News for You, but nothing that has the impact of The Daily Show.

However, Robert Peston, the BBC's business editor, denied that a British Stewart was necessary. "Cramer has been attacked by Jon Stewart for being too optimistic after the crisis started in the summer of 2007," he said yesterday. "The allegation against him and CNBC is that they were taking too rose-tinted a view of what was subsequently going on at various institutions. That is simply not a criticism that I think can be levelled at most UK financial journalists.

"If Stewart tried to do that over here, I think he'd look like an idiot because I don't think there's evidence for falling down on the job in remotely the same way. I don't think it's possible to do it because the evidence isn't there of a complacent, or self-satisfied, or lazy, or unduly optimistic media."

Jon Stewart: A life

Born: New York, 28 November 1962.

Family: Married to Tracy McShane. Two young children.

Career: Creative consultant on The Larry Sanders Show in 1998, taking over The Daily Show in 1999.

Highlights: Upbraided the hosts on CNN current affairs show Crossfire in 2004. Has interviewed Gen Pervez Musharraf, Tony Blair and Barack Obama.

Low point: Low ratings as Oscars host in 2006 and 2008.

He says: "We recognise what a world-changing thing we have created and the power that we wield. And we wield it arbitrarily and mostly for evil."

They say: "He is our most astute - and most hilarious - press watchdog."

David Remnick, New Yorker editor.