Roughly 200 years ago, two countries in the Americas declared their independence from their colonial masters. Both had abundant land, natural resources, good ports, a temperate climate – seemingly all the makings of a great nation.

Two centuries later, the United States was the richest country in the history of the world, while Argentina was setting records with the three largest defaults in history – roughly $100 billion to its foreign creditors, and billions more to the World Bank and the IMF. Its banking system in ruins, its economy devastated, its credit rating destroyed, the government was fighting to keep the poverty rate below 50%.

Neither bad luck nor destiny drove Argentina from crisis to crisis; bad government did. Commodity wealth made Argentina one of the richest countries in the world until well into the 20th century. But part of the legacy of Juan Peron’s quasi-fascist industrial policy was an economy that, by the 1980s, had become a backwater of moribund state-owned firms and sclerotic labor markets. Successive governments ran irresponsible deficits and grossly inflated the currency to pay for them.

Paul Blustein’s new book, “And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina” (PublicAffairs, 304 pages, $27.50) chronicles this latest episode in Argentina’s checkered economic history, which grew from the attempt to control hyperinflation and attract capital by “pegging” the currency to the U.S. dollar.

Markets loved the government guarantee that the exchange rate would always be one peso to one dollar. They loved it too much, pouring torrents of capital into Argentina that the government lapped up with reckless greed. In January 2002, the bacteria-like growth of the deficit forced Argentina to abandon the peg and default on its debts. In the next year, the economy contracted by more than 10%.

Mr. Blustein’s book ably delineates the perverse incentives that led the IMF and Wall Street to support Argentina’s disastrous debt habit. Banks helped Argentina issue unsustainable debt for the fat fees. Research analysts hesitated to sound the alarm, because their employers wanted Argentina’s business. Money managers bought Argentina’s bonds because their performance was judged on how well their portfolios did compared to the Emerging-Markets Bond Index-Plus – and profligate Argentina’s debt made up more than 20% of that index. A manager could plow 15%-20% of his portfolio into Argentine bonds, lose every penny, and still point out that he’d outperformed the EMBI-Plus.

Then the IMF became Argentina’s enabler, layering its own loans on top of Argentina’s already unsustainable debts while praying for an economic miracle. There were many reasons for this folly, most notably the fear that the IMF would be blamed for the inevitable crisis if it didn’t lend.

The denouement cannot be understood without an understanding of the dollar peg, which surrendered government control over monetary policy. This restored investor confidence but also restricted the government’s ability to stimulate the economy. As Mr. Blustein elegantly explains, Argentina needed to run sizeable surpluses during the boom years, so that if a recession struck, it would be able to prop up demand with government spending.

Instead, the government spent every cent it could borrow. When the inevitable recession arrived in the late 1990s, Argentina’s monetary policy was, in effect, the monetary policy of the United States – where Alan Greenspan was putting the brakes on a boom. With no savings cushion, Argentina entered a downward spiral: tax receipts fell, increasing borrowing, which raised interest rates on Argentina’s already sizeable debt, which slowed the economy still further.

By 2000, when the pattern was clear, cutting spending was impossible: political suicide, as well as economically contractionary. It was clearly necessary to reduce the crippling interest payments by devaluing, or instituting “forced restructuring” – the equivalent of bankruptcy for countries. But when the government balked at such radical measures, the IMF lent more money anyway.

Mr. Blustein is not quite scathing enough about any of this. Analysts who played down the risks helped their employers defraud the unwitting, and money managers who loaded their portfolios with Argentine bonds were violating their fiduciary duty to their investors. Argentina’s government heard from many corners that the peg required budget surpluses; the politicians who ignored this are directly responsible for the appalling poverty currently afflicting millions. And the IMF staff members who saw how hopeless the situation was, but still kept the loans flowing, increased that misery by helping put off the day of reckoning until the crisis reached catastrophic levels.

Unfortunately, only one target really gets a righteous pounding from Mr. Blustein: the Bush administration. Paul O’Neill’s treasury department made a bad bailout worse, encouraging the IMF to lend money that prolonged and thus worsened the crisis, but also demanding a rescue package too small to reverse the slide. Mr. Blustein’s analysis of this is justly lacerating. But he is too lax elsewhere, particularly on the Clinton administration, which presided over the first loans – the ones that kept Argentina on its disastrous course while there was possibly still time to steer to safety.

Mr. Blustein summarily dismisses credible arguments that Robert Rubin, Clinton’s treasury secretary (and former CEO of Goldman Sachs),had effectively been bailing out Wall Street with his lavish interventions in international markets. There is good evidence that many who lent excessive amounts to emerging markets did so because they believed Washington would ride to their rescue in a crisis.

Nonetheless, Mr. Blustein has built an admirably clear and cohesive – and important – narrative out of the tangled threads of Argentina’s economic history. Even more impressively, he has made a page-turner out of a currency crisis, which surely ranks among the neatest feats in the very checkered history of business journalism.

Ms. McArdle last wrote in these pages on religion and economics.