Stocks have stumbled around aimlessly this week, diving one day only to recover the next. It’s almost like they are following a path laid out by a drunk and during an earthquake.

It really doesn’t seem to make a lot of sense as news pushes prices whimsically from place to place.

The big issue is that investors are preoccupied by the political machinations in Washington as the economy implodes.

Shares improved late Thursday when early details on Obama’s mortgage assistance plan indicated it would help homeowners before they even fall behind on their payments, a big departure from previous efforts.

Of course, the potential for abuse is gigantic, even though officials claim homeowners would face a uniform hardship eligibility test.

How the plan is judged by the electorate, already angered by the bank bailout and skeptical of the stimulus package, will be critical for winning support in Congress.

The impetus for these efforts is to forestall the continued slide in home prices that is battering consumer net worth. The Federal Reserve released a study today that found the wealth of American households, which swelled 17% from 2004 and 2007, was now down 3.2% from 2004 through October 2008.

That means that all the home and stock gains fueled by the largest credit bubbles in history have been vaporized. As a result, in trend we’ve covered before, households are deeply cutting back expenditures.

With this in mind, it’s no wonder that the employment situation continues to weaken as business react. Half a million jobs were lost last month. Continuing unemployment claims climbed last week to a record 4.81 million.

So the big picture hasn’t changed: The bears are bolstered by cynicism over the policymaking process and pessimism about the economy’s trajectory. The bulls’ main weapon is a fleeting hope that the government’s can administer expensive and complicated first-aid to the economy and the financial markets and prevent catatonic shock. While the two camps duke this out, the major indexes remain mostly flat despite all the day-to-day jumpiness.

Cutting Down on Jingle Mail

One important development this week, though, was the declaration by Bank of America (BAC) and Citigroup (C) chiefs that they would be willing to support a temporary moratorium on home foreclosures.

Besides the obvious public sympathy points gained, a reprieve from the vicious cycle pulling down home values would help reduce the toxicity of mortgage-backed securities clogging up balance sheets and help entice public investor interest in Treasury’s new Public-Private Investment Fund.

This adds to pressure for a foreclosure holiday from House Financial Services committee chair Barney Frank and the Office of Thrift Supervision. Both want the wave of evictions halted until more details emerge on Treasury Secretary Tim Geithner’s plan for a $50 billion Affordable Housing Support and Foreclosure Prevention Plan.

What little we know about the plan points to a structure for en masse mortgage modifications.

Unfortunately, experience shows little of this will really work. Data from the last few housing bust cycles shows that distressed homeowners, many of which stretched a bit out of their price range with fancy interest-only mortgages, are now so sickened by how quickly and viciously the American dream has turned into a nightmare that they just want out.

The rise of jingle mail, the catchy term for mailing back the house keys to the mortgage lender and walking away, hasn’t been slowed by efforts to modify payment terms and prevent foreclosures.

There were the findings that Wells Fargo loan-servicing Vice President Mary Coffin presented to the audience at the American Securitization Forum in Las Vegas this week. She reported that her team was able to contact about 80% of WFC customers in foreclosure.

Of those, a quarter declined assistance, a third accepted help but failed to make payments or follow up on the plan, and 9% couldn’t be helped.

After adding up the percentages, 76% of people behind the foreclosures at Wells Fargo were unwilling or unable to be saved from the process.

For whatever reason, foreclosure is no longer viewed as negatively as in generations past. Such a normalization of bad behavior is a serious problem for not just the banks, but for the taxpayer now funding their resuscitation.

It casts doubt on the success of Treasury’s plans to keep people in their homes and find new buyers for the mortgage-backed assets without significant and potentially very expensive government protection against losses.

To see how I recommend trading on these ideas, check out my Trader’s Advantage advisory service.

This article was written by Jon Markman, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.