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The IMF's economic strategy here was essentially the opposite of what President Barack Obama is doing with today's economic stimulus package. Instead of boosting government spending to make up for the drop-off in private-sector demand and counteract the recession, foreign governments were required to cut back dramatically, making the recession worse.
The IMF never imposed any penalties on the banks it bailed out. Management teams were not forced out, shareholders continued to enjoy high returns and no reforms in bank-lending practices were required.
This wasn't just unfair. It taught the banks that they could book big short-term profits on risky loans and rely on governments and the IMF to save them if the bets ever went bad. Economists call this phenomenon "moral hazard" -- the tendency for actors to behave recklessly if they are insulated form the consequences of their bad bets.
"We continuously propagate the moral hazard by bailing these institutions out," says William Darity, an expert on the Latin American Debt Crisis, who teaches economics at Duke University. "It always struck me as odd that we're more willing to sacrifice the moral hazard issue on the side of these big lenders than on the part of the borrowers."
So it's no surprise that today the big banks are coming back to both the taxpayers and the IMF for support. After gorging themselves on a different kind of predatory, high-interest debt -- the subprime mortgage -- banks find themselves on the brink of collapse.
And once again, with the global economy in crisis, political leaders in the U.S. and Europe want to bolster the IMF's funding to give it a broader role in the international bank bailout scam. Obama has pledged $108 billion in fresh financing for the global finance machine.
The irony is that the IMF's own destructiveness nearly wiped it out entirely. By 2007, the IMF had just $10 billion in loans outstanding, down from $105 billion four years earlier, as countries simply refused to work with the lender.
But despite a host of promises and rosy press releases from the IMF about its plans to treat countries fairly, its standard policies remain in place.
"The major source of demand for those funds is East Europe, and that's really a story about bailing out the banks," Baker says.
When the dot-com bubble burst earlier this decade, banks went searching for other places to charge high interest on loans, and Eastern European economies were a prime target.
Today, with the global economy slumping, banks are watching the mirror image of the U.S crisis unfold in developing countries. Here, banker excess fueled a massive recession. In much of Eastern Europe, the recession brought on by troubles in the U.S. is fueling a financial crisis -- the banks aren't getting paid because the economy is slowing down.
The IMF is still up to its old tricks. According to an analysis by Bhumika Muchhala of the Third World Network, the IMF has attached similar austerity measures it has used for decades to the emergency loans it made in 2008 to Georgia, Ukraine, Hungary, Iceland, Latvia, Pakistan, Serbia, Belarus and El Salvador.
If we give money to the IMF, we know what will happen: Eastern European nations will be forced to cut social-welfare programs and pay off big banks in the U.S. and Western Europe.
"I think the IMF could serve many purposes, but not without changing very significantly, and I don't see those changes happening," says Aldo Caliari, coordinator of the Rethinking Bretton Woods Project for the think tank Center of Concern.