Simon Johnson: Via IMF, Our Tax Money Will Bail Out Eurobanks

The official story is that the $108 billion for the International Monetary Fund that the House leadership wants to attach to the war supplemental on Tuesday is "global stimulus," "foreign aid," "money for poor people in poor countries."

Critics like Mark Weisbrot of the Center for Economic and Policy Research say this is a ruse, and that the money is intended to bail out European banks from their exposure in Eastern Europe.

Weisbrot notes that

Almost all of the agreements that the IMF has concluded since the global economic crisis began have included the opposite of stimulus programs: for example spending cuts or interest rate increases. The amount of money that will help poor countries is tiny. And it is difficult to see why the IMF would need hundreds of billions of dollars to help governments with balance of payments support: for sixteen Standby Arrangements negotiated since the crisis intensified last year, the total has been less than $46 billion.

On the other hand, European banks are facing potential losses in the hundreds of billions of dollars. Some, like France's Societe Generale, have already gotten billions of dollars from the TARP bailout. If the purpose of adding these vast sums to the IMF's coffers is to bail out these banks, then the taxpayers of the United States (and other countries who are being asked to contribute) ought to know about it.

Who should you believe about the purpose of the money - the House leadership, or the critics?

Well, Simon Johnson, former chief economist at the International Monetary Fund, appears to be weighing in with the critics, at least in terms of his understanding of what the IMF is doing:

First and foremost, we are looking at a creditor bailout-type situation. Latvia is receiving large amounts of foreign financial assistance - from the IMF and the European Union - with the express purpose of making all payments due on its debts (mostly owed to West European banks; thank you, Sweden). This is strikingly reminiscent of Latin America after 1982: above all else, protect the foreign banks.

This is what the House leadership doesn't want you to know. They want $108 billion in American tax dollars to bail out European banks from their exposure in Eastern Europe. And they want the money to be approved as quickly as possible, because each day that the IMF money isn't approved is another day during which more people will find out what's going on.

But if the money for the IMF is approved, expect press reports about how the IMF is bailing out European banks with U.S. tax dollars - stories that will be amplified by right-wing media.

As Jane Hamsher notes, right-wing bloggers are already targeting Blue Dogs who vote for the IMF bailout - the international version of the controversial TARP. She cites Erick Erickson at Red State:

It is bad enough that we're bailing out domestic banks. Barack Obama now wants to bail out European banks via funding for the International Monetary Fund ("IMF").

Hamsher writes:

The Blue Dogs are especially vulnerable to this dynamic. By forcing them to heel on this bill, Rahm is writing their 2010 GOP attack ads -- "Voted for $100 billion bailout of European Banks." That ought to go over well.

The right-wing blogosphere has already caught on that the IMF funding is about bailing out European banks. Will Democrats find out before it's too late?