Recent revelations that JPMorgan Chase, the largest U.S. bank by market value, may use its bailout money to buy other banks rather than to make more loans to customers raises questions about the effectiveness of the current rescue plan for the nation’s faltering financial system.

Here’s what happened: JPMorgan had just agreed, under Treasury Department pressure, to take $25 billion from the federal government under Treasury Secretary Henry Paulson’s decision to recapitalize banks as the best way to get them to start making loans again.

An executive, moderating an employee conference call four days later, on Oct. 27, was discussing details of JPMorgan’s recent acquisition of troubled Washington Mutual, WaMu, the nation’s largest savings and loan association. An employee asked about the $25 billion injection: “What effect will that have on the business side and will it change our strategic leading policy?”

The executive, confident that he was speaking only to bank employees, said he thought the federal money would help the bank “perhaps be little more active on the acquisition or opportunistic side.” He mentioned the WaMu and earlier Bear Stearns acquisitions and suggested there would be others: “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.”

New York Times columnist Joe Nocera had obtained the call-in number and listened to a recording of the conference call. Mr. Nocera published the text and commented: “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 executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.”

At another point, the executive said that “loan dollars are down significantly” and added: “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” He said nothing about making loans to help the American economy.

A Morgan spokesman, asked for comment, said correctly that the bank had agreed to participate in the new plan at the request of the U.S. government. He said the bank “believes the plan will be beneficial to the overall health of the U.S. financial markets and the U.S. banking system.” As for loans, he said the bank was “striving to make loans that borrowers can afford to repay.”

Still, lending is slow to start up, and Treasury’s no-strings funding of banks doesn’t match the British plan, which required the banks to make loans. It remains to be seen if this is a major shortcoming.