PhillyDeals: PhillyDeals: Experts weigh in on the bailout

As the stock market slid again yesterday, we collected thoughtful reactions to the government's plan to invest $250 billion in U.S. banks - in some cases, whether they want it or not:

"The United States government has socialized the American financial system," writes veteran bank analyst Richard X. Bove, of Florida-based

Ladenburg Thalmann Financial Services Inc.

"Large commercial banks are the winners under the new regime," Bove added, and they "will now take market share from all other institutions" as "the instruments of the new bureaucracy to control the system."

"There is no assurance that this plan will cause banks to lend more," writes Joseph Harenza, chief executive officer of

Griffin Financial Group L.L.C.

, of King of Prussia, an adviser to midmarket banks, in a note to clients.

"Will banks lend the capital to Main Street and industry, or will they hoard it? I'll bet the big guys will use it to fund acquisitions. They'll get bigger, and badder, in the fight for loans and deposits," Harenza told me, adding that most bankers nevertheless support the deal.

Also, Harenza says, the

government, by charging banks just 5 percent yearly for its money over the next five years, has driven off private investors like billionaire Warren Buffett, who recently charged the

Goldman Sachs Group Inc.

10 percent for a capital investment, with other, less favorable terms.

The government investment in banks is "the best news yet for the financial system," writes Mark Fitzgibbon, director of research at Sandler O'Neill & Partners L.P., a Wall Street investment bank. But Fitzgibbon and three colleagues add that there was also danger:

That "our banks could now be directed to lend toward political and social ends . . . with the government effectively picking winners and losers."

That "the plan could reinforce negative behavior, [since] debt got us here, and it looks like more debt is the plan to get us out."

That the government "seems to penalize those institutions" that stayed out of trouble by bailing out those that were more reckless.

Jamie Dimon

, chief executive of

JPMorgan, Chase & Co.

, took a string of tough questions in his third-quarter earnings conference call.

Analyst Michael Mayo from Deutsche Bank AG asked Dimon if JPMorgan "would be willing to use that $25 billion for new acquisitions."

Yes, said Dimon: "I would be willing to use it for anything that made sense for JPMorgan shareholders."

Dimon also said, "The government would like us to use the capital to facilitate clients, to make loans and stuff like that, and we want to do that, too."

Yes, credit is going to get tighter. Instead of the low- or no-down-payment mortgages of the mid-2000s, "people have gone back to old-fashioned 80 percent," which means you need a 20 percent cash down payment.

In fact, with home values falling, "we're not at 80 percent in California, Nevada or Florida. Sixty-five percent is the max." To buy a $100,000 house, you'd need $35,000 down.

The government, Dimon said, is trying to prevent "investors, banks . . . individuals, small businesses, large businesses, all starting to take actions that are rational for them as an individual, but in total can . . . pull credit out" of the system.

"If you're not fearful, you're crazy," Dimon told analyst

Meredith Whitney

of

Oppenheimer & Co. Inc.

"I'm fearful," said Whitney, who recently issued a report predicting foreclosures will double from their present level, to nearly one U.S. home of every 20.

"We know you are," Dimon said. "We're waiting for you to reverse your position."

Mostly supportive of the government, Dimon also hedged: "Making policy on the run is a very hard thing to do, and it always has these huge unintended consequences."

Could scolding by Treasury Secretary Henry M. Paulson Jr. and other public officials push banks to do the right thing?

"Jawboning is one of the key tools (if not the only one) that the Treasury Department has to ensure that the massive injection funds actually goes to new credit creation," writes

Louise Purtle

of

CreditSights

.

And, summing up: "What we have witnessed in the past few months is the end of an era - not of free-market capitalism, as many would have us believe, but of excessive and inexpensive [credit].

"The quasi-nationalized financial system that is now in place will gradually give way to the dominance of global banking by a smaller number of institutions that operate under a much stricter regulatory regime, one that makes the kind of credit creation that drove much of the world's growth, in the long, extended cycle of the last two decades, impossible."