The bailout of private banks and financial institutions has become a touchy political issue in the United States, ever since President Bush's Treasury Secretary and former Goldman Sachs CEO Hank Paulson asked Congress for a $700 billion dollar blank check last September.

    Now the Obama administration is asking the Congress for $108 billion for the International Monetary Fund. This was in accordance with a plan that the administration has helped organize to raise $500 billion in additional funds for the IMF. This would add to the approximately $200 billion that the IMF has on hand, $100 billion in gold reserves, and another $250 billion that the Fund will create in its own currency. These are enormous sums of money that the IMF has never come close to before.

    What is all this money for? There is an answer staring us in the face from the financial press: European banks.

    It seems that Europe's banks have gotten into a mess in their own neighborhood that is comparable to the "troubled assets" that our financial institutions accumulated in the course of the housing bubble - which they also shared. These banks had a fit of irrational exuberance in Central and Eastern Europe in recent years, with the result that they now have at least $1.4 trillion - and that is a conservative estimate - in exposure there to loans that are certain to have a very high default rate.

    Most of the Central and Eastern European economies are in free fall right now. To make matters much worse, much of their borrowing from European banks was in foreign currency. This extended even to households: e.g. over 60% of Hungary's mortgages are in foreign currency. When these currencies fall, as some already have, many of the borrowers - both businesses and households - are faced with unpayable debt burdens. Others, such as Latvia, are teetering on the brink of devaluation, which could set off a chain reaction in other countries, as well as mass insolvencies.

    The exposure of European banks to the region is astoundingly large relative to their economies. Austria is off the charts with about 64 percent of GDP lent in Eastern Europe; Belgium and Sweden both have more than 20 percent, and Switzerland and the Netherlands are in double digits.

    This is where the IMF comes in. In the United States, we have not only the $700 billion TARP bailout, but more than three times that amount, which has been dispensed by the Federal Reserve. The Fed has been used because it is non-transparent and unaccountable to Congress - unlike for the TARP, where Congress attached some rules for accountability, the taxpayers do not even know who has received the more than $2 trillion on the Fed's balance sheet.

    For various reasons, the European Central Bank is not going to play the role that the Fed has played here. (The Fed itself has recently been hit by strong demands for more transparency, with 186 Members of Congress sponsoring a bill that would require it to be audited by the Government Accountability Office). The European banks are therefore counting on the IMF to help save them from the costs of their bad decisions.

    The Obama administration has argued that the money is necessary to help provide a global stimulus, and to help poor people in poor countries. But the facts do not support this claim. 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.

    --------

    Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is co-author, with Dean Baker, of "Social Security: The Phony Crisis," and has written numerous research papers on economic policy. He is also president of Just Foreign Policy.