Financial markets are as much about confidence and certainty as they are about dollars and cents. That’s why the apparent lack of coherent direction in the financial bailout approved by Congress last month is dangerous.

Last week, Treasury Secretary Henry Paulson said that using billions of federal dollars to buy troubled mortgage assets from banks was not working. He proposed that the funds instead should be used to buy consumer credit – auto loans, credit card debt. The market dropped more than 400 points that day.

“By changing tactics and communicating poorly, he may be inadvertently re-creating the same failed ad-hoc approach to the crisis that he’s been trying to escape,” Joshua Zumbrun wrote for Forbes last week. “That’s a problem. For the next three months, he’s still the bailer-in-chief for a market lacking confidence.”

Naturally, there are differing views on the best way to restore confidence to the market. The bailout, as passed by Congress in early October, gave the treasury secretary great leeway in using $700 billion to stop what was becoming a financial free-fall.

The initial focus was on getting what were euphemistically called “troubled assets” out of the system so that banks would loan money, thereby getting cash flowing to get markets working again. The assets were mainly mortgage-backed securities that could be sold when the market was normalized and the proceeds returned to the government and taxpayers.

With about half the money allocated, the financial markets are still in turmoil, prompting Secretary Paulson to turn his attention to consumer credit. Helping consumers with car loans, student loans and credit card debt may inject some money into the system, but without collateral, there is no guarantee that the government will get any payback. Worse, with consumer borrowing exceeding savings, encouraging more debt is not a long-term solution.

Instead, two investment managers – Thomas Patrick of New Vernon Capital and Mac Taylor of Verum Capital Group – propose untangling the complex system of investments that was created to finance mortgages. As explained by New York Times financial columnist Gretchen Morgenson, the men propose the refinancing of more than $1 trillion worth of mortgages that soon will face big upward adjustments in interest rates. Homeowners would lock in a fixed rate and the complex system of financing the loans, called securitization, would be eliminated in favor of clearer financing from Fannie Mae and Freddie Mac. Taking the securitization off the hands of financial institutions would free up funds that could be used for other loans, along the lines of what the federal bailout is trying to achieve.

“If we eliminate these securities, strip away the complex structure, we can fix the banking system,” Mr. Patrick told the paper.

Simplicity being akin to predictability, this is a prescription worthy of consideration.