A few days ago, I pointed to a Washington Post story that noted bailout recipient banks were not using the government money to increase liquidity (the stated justification for the bailout), but to acquire other banks.  The New York Times advances the story:

In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this [J.P. Morgan] executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.

(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy.

So, let’s see, where have we seen this happen before?  You know, where the American public is rushed in to commit enormous resources to protect the common good, only to find out that the effort is mostly benefitting the already strong?  Hmmm:

It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.

Gosh.  I’m shocked.  I don’t doubt that there was/is an enormous problem requiring an enormous solution.  What I was 99% sure of before the bailout, and 100% sure of now, is that no one should ever have taken the “trust us” requests of the bailout proponents seriously:

There are lots of reasons the markets remain unstable — fears of a global recession, companies offering poor profit projections for the rest of the year, and the continuing uncertainties brought on by the credit crisis. But another reason, I now believe, is that investors no longer trust Treasury. First it says it has to have $700 billion to buy back toxic mortgage-backed securities. Then, as Mr. Paulson divulged to The Times this week, it turns out that even before the bill passed the House, he told his staff to start drawing up a plan for capital injections. Fearing Congress’s reaction, he didn’t tell the Hill about his change of heart.

Now, he’s shifted gears again, and is directing Treasury to use the money to force bank acquisitions. Sneaking in the tax break isn’t exactly confidence-inspiring, either.

There’s that theme again – a constantly shifting rationale covering up what seems to be a pretty straightforward underlying plan.  We can be sure Congress won’t let them get away with it this time, right?  There’s a quote near the end from Sen. Chris Dodd (D-CT) about how there will “be hell to pay” if the banks are hoarding the cash rather than using it for loads.  For some reason, I can’t quite bring myself to trust that, either.