For Deposit Only : MASTERS OF ILLUSION: The World Bank and the Poverty of Nations.<i> By Catherine Caufield</i> . <i> Marian Wood/Henry Holt: 384 pp., $27.50</i> : THE BANKERS: The Next Generation.<i> By Martin Mayer</i> .<i> Truman Talley Book/Dutton: 514 pp., $29.95</i>

Fifty years have passed since the World Bank was founded to foster economic development in the poorest nations. But it’s not an occasion for popping the cork, since, to put it bluntly, it has failed in its mission. After $300 billion in loans, the gap between the First World and Third World is greater than ever.

The bank’s story, as capably reported by Catherine Caufield in “Masters of Illusion,” is as fascinating as it is dispiriting. It is one of two new books on banking; the other, “The Bankers” by Martin Mayer, is more sanguine. With unequaled mastery of the subject, and great panache, Mayer describes recent developments in American banking, from adjustable rate mortgages to zero-coupon instruments.

The World Bank’s ineptitude has created endless nightmares: To build dams, many of which failed to produce either the irrigation or power they were designed for, millions have been forcibly resettled, which a bank anthropologist observes “is about the worst thing you can do to a people, next to killing them.”

The bank designs projects with little concern for the environment: shunning loans promoting conservation, in 1993, it made a $400 million loan to India for coal-fired power plants (over the objections of the German, Belgian and U.S. governments), the first installment of a $12 billion series of loans. Without desulfurization equipment vast tons of carbon dioxide and sulfur and nitrous gases will be added to the atmosphere yearly in what the Environmental Defense Fund laments “will be the single biggest source of new greenhouse gas emissions on Earth.”

Because these bankers are not out to do evil, how do we account for such behavior? “Extraordinary arrogance,” confesses a bank economist. “We were coming from Washington . . . the center of civilization and we had money and that made us brilliant!” The bank almost revels in its disdain of local knowledge--it only recently discovered, after years of failure, that if the irrigators themselves are involved in the design of the projects, you end up with a much better-designed system.

To make matters worse, Caufield has caught the World Bank in many fibs and whoppers designed to reassure the public that the environment was being protected or that the poor were being attended to. Robert McNamara, for example, after assuming the World Bank’s presidency, insisted on being told exactly how many poor would be helped and drove his staff to invent numbers to satisfy him--shades of body counts in Vietnam. (One awaits Mea Culpa II.)

To explain its policies, Caufield believes, the bank “has its own ideology independent of its members’ politics. Its creed is to lend.” Those who accuse the bank of favoring right-wing governments, she argues, have it wrong: “What it actually favors are strong governments”--dictatorships that can force through the unpopular reforms that the bank dictates.

But economic progress is rarely obtained playing footsie with tyrants. As the distinguished economist and philosopher Amartya Sen convincingly argues--citing the remarkable fact that there has never been a substantial famine in a democratic country--a powerful link exists between liberty and economic well-being. This link seems to elude Caufield.

The bank’s approach, by contrast, produces useless and ghastly monuments, imitative of the grandiose architectural horrors of Stalin, Hitler and Ceausescu. It condemns Third World peoples to unending poverty because its authoritarian model is exactly the opposite of what is needed.

Caufield’s bureaucratic interpretation of bank motivation--its propensity to lend--is useful, even convincing, but it raises the question of who profits from the bank’s activities. Just as the Marshall Plan was not simply humanitarian aid to rebuild Europe but an attempt to create profitable orders for American manufacturers (as well as to contain Communism), World Bank loans don’t simply head south to Zaire or Honduras but go “straight from Washington to Pennsylvania, where they manufacture the turbines, or Frankfurt, where they produce the dredging equipment.”

Moreover, its capitalist ideology is sui generis American. In 1993, it issued a report that angered Japan and the four Asian Tigers (South Korea, Taiwan, Hong Kong and Singapore) by lauding market-friendly policies and denigrating the contributions made by their (business-oriented) governments.

If there is a recurring thread in Caufield’s story, it is that the World Bank has done more harm than good. With the bank under fire in the U.S. Congress, one might at least expect Caufield to urge that new funding be conditional on fundamental reform. Given her indictment of the bank, why not go for broke? If, as she evidently believes, the bank is a miserable failure, why not simply abolish it?

While Caufield scrutinizes an international lender in the public arena, Mayer’s tour de force focuses on private banking in America. And what a marvelous tour guide! We learn that the second-largest generator of MasterCard debits in the world is--the envelope, please--China. Almost proudly, he lets us know that banking--his baby, so to speak--has a higher percentage of female officers than any other industry. Feel guilty about bouncing a check? Don’t. With fees sometimes as high as $25, this charge, in proportion to cost, is often a bank’s most profitable activity.

In the near future, there will be a handful of nationwide institutions--at most, 20--with electronic links to customers of all kinds. Some will be banks, others brokerage houses, still others data processors like Microsoft. In addition, credit unions, factors and “niche” banks will exist to service small business. But banks as we know them have seen their day, victims of the marketplace.

Economies of scale exist for the first time--previously, medium-size banks were more profitable than large ones--and are the driving force behind mergers. Half of all banking jobs will soon be destroyed. But not to worry: Good bankers, Mayer assures us, will find good jobs at insurance and finance companies. Then he adds, with an optimism many may find hard to share, “It should not be beyond the wit of a society where public service and health standards are deteriorating” to find jobs for those in banking who did the dull work.

Newly discovered loopholes have eviscerated the Glass-Steagall Act, the 1930s legislation that erected a wall between the investment banking of Merrill Lynch and the commercial banking of Citibank. Banks no longer focus on loans but depend for their income on capital market operations and fee-earning business, especially in consumer finance: Citibank now makes $2 billion a year on fees relating to credit cards (more than half its profits).

The value of worrisome derivative contracts, made minimally understandable by Mayer--this is a compliment--are already more than three times the gross domestic product. Dealers like Citibank and Merrill Lynch create, sell and trade a zoo of futures, forwards, options, swaps and so forth--”derivatives” that Mayer believes “are something out of Robert Louis Stevenson: the very useful Dr. Jekyll and the very dangerous Mr. Hyde.” Jekyll permits hedging, enabling farmers and exporters to avoid market vicissitudes, but the prowling Hyde imperils prosperity.

Mayer’s solution is uncharacteristically unrealistic. He argues that highly leveraged derivatives without redeeming social purpose (determined by a banking regulator) should be considered gambling contracts and be unenforceable in a court of law. Even so, one wishes Mayer had assessed more seriously the enormous risks to the American economy of this new and peculiar casino activity. Unfortunately, he did not.

While not always easy going, “The Bankers” is leavened with wit and a cast of colorful characters. Though enamored of the efficiency of capitalist markets, Mayer is wise enough to recognize the merits of selective regulation. He is not concerned, however, with how the benefits of increased banking efficiency will be shared, never once mentioning the growing inequality in the United States of wealth and income, a disheartening reality at least partly associated with all the wondrous changes in banking that he has been describing.

The two banking studies have produced an interesting contrast: Caufield is sensitive to the question of international inequality and seems to believe that the future will be a grim continuance of “the poverty of nations.” Mayer, by contrast, faces the future of domestic banking with equanimity, aside from fleeting moments of doubt associated with the savings and loan disaster, the Barings bank failure, derivatives and the teetering Japanese financial system. But he is unconcerned with how the banking revolution affects poverty in our nation or income inequality, both growing sources of social disintegration, both deeply unsettling.