In a very thinly reported move last week, the Federal Reserve announced that it will spend up to $600 billion buying up obligations of government-sponsored enterprises, and mortgage backed securities, many of which were the original targets of the $700 billion “bailout” plan back in October.

To me, the most interesting thing about this move is that it won’t cost the Federal Reserve anything. Well, whatever it costs for paper, ink, and the electricity to run the presses while they print up $600 billion in crisp new bills. That’s right, they’re going to “pay” for those assets by increasing the amount of money. Not a bad racket if you can get it. All of a sudden the Fed has $600 billion to spend that it didn’t have to get by running, hat in hand, to Congress. Nope. Just print up the bills and nobody’s the wiser. Never mind that the dollars you’re holding today are worth slightly less than they were yesterday.

Something similar is happening when the Treasury injects money into the banks. In exchange for their $25 billion, a bank gives the government shares of stock. They’re special non-voting shares, which is a good thing, but they’re new shares that dilute the value of existing shares. Stockholders end up paying for it in two ways: the value of their shares is diluted, and they have to pay increased taxes to offset the government expense (or, if new money is printed, pay the hidden tax of inflation).

How about a simple example to illustrate the concept. Imagine that your neighborhood creates a lawnmower co-op. For $10, you get one of 10 shares in the co-op. But the co-op falls on hard times–needs to upgrade the mower, maybe. The co-op issues 10 new shares, bringing the total number of shares to 20, and sells those shares to new members at $5 each. All of a sudden, your share of the co-op is worth 50% less. That’s bad enough, but you also get hit with an assessment from the co-op for increased maintenance costs. That’s pretty much what’s happening to stockholders when the banks take the bailout money.

I thought, back in September, that Bernanke, Paulson, and company had a real plan, backed up with solid reasoning, and some idea of what effects their proposed policies would have on the financial system and the economy. I didn’t agree with their ideas, but I thought I could at least respect their reasoning. But three months later, I’m not so sure. I think that they, just like Congress and the Bush Administration in general, are trying anything in an attempt to get a short-term boost, regardless of the long-term consequences.

The best bet for everybody would be for governments to step back and take an honest critical look at the situation, study possible responses and their likely outcomes, announce a plan, and then stick with it. The current whac-a-mole approach is worse than doing nothing (which, come to think of it, still doesn’t sound like a bad idea). Changing approaches every few weeks does nothing but add uncertainty, causing people to overreact and creating chaos when the thing we need most right now is stability.