Facebook, JPMorgan gaffs erode faith in Wall St.
Elizabeth Warren, architect of the Consumer Financial Protection Bureau and a Democratic candidate for Senate from Massachusetts, said Wall Street has lost an image that once said, ‘‘We are solid and we will be here forever.’’
‘‘Banking should be boring,’’ she said, ‘‘because boring creates confidence.’’
As if small investors needed a reason to feel queasier, the stock market is having its worst month of the year, mostly because of concerns about a debt crisis in Europe and whether Greece will exit the euro currency group.
The Dow Jones industrial average gained 9 percent during the first four months of the year, but that has withered to 2 percent.
The Standard & Poor’s 500 index more than doubled in the three years after its financial crisis low, in March 2009, and is still up 93 percent. But small investors, mistrustful of the market, are still pulling money out of stocks.
Investors withdrew $85 billion from U.S. stock mutual funds last year and have pulled more money out than they put in for five years in a row — significant given how many Americans automatically put money in through 401(k) accounts.
They had already withdrawn $6 billion through April this year, and the decline in May figures to make the withdrawals accelerate.
To be sure, Main Street has a love-hate relationship with Wall Street. For the 1980s and 1990s, and for much of the 2000s, it tilted toward love, and bankers were hailed as masters of the universe.
When booms turn to bust, as after the crash of 1987, the bursting of the dot-com bubble in the early 2000s and crisis of 2008, the relationship quickly turns sour.
But for the institutions of Wall Street, these recent missteps could hardly come at a worse time. The presidential election is less than six months away, and the economy and the role of large financial institutions figure to play large roles.
When Congress passed an overhaul of financial laws in 2010, it was designed to prevent a repeat of the 2008 crisis. The details are still being written, and the financial services industry is fighting hard against many of those changes.
Two weeks ago, Treasury Secretary Timothy Geithner said the JPMorgan loss ‘‘helps make the case’’ for tougher rules for banks.
William Black, a former bank regulator who now teaches law and economics at the University of Missouri at Kansas City, said he believed the banks would still be able to water down the regulatory changes, even after these embarrassments.
The banks, he said, ‘‘are bringing a gun to a knife fight.’’
But the issues are not clear-cut. Michael Barr, a law professor at the University of Michigan who was an architect of the overhaul, said he is concerned that the Facebook episode might make it harder for other companies to raise money by taking themselves public.
‘‘The more the system feels like it’s rigged, the harder it is going to be for companies to raise money and for investors to freely participate,’’ he said.
Ernie Patrikis, a former top official at the Federal Reserve’s New York branch who is now partner in the banking regulatory practice at the law firm White & Case, said banks deserve part of the blame for spooking investors in 2008.
But he said regulators have been more rigorous since, some financial institutions have closed, and ‘‘a lot of CEOs went missing.’’
‘‘I don’t want to see a day of reckoning’’ for the banks, he said. ‘‘The banks are our lifeline.’’
AP Business Writer Marcy Gordon in Washington, AP Technology Writer Barbara Ortutay in New York and AP Radio correspondent Julie Walker in New York contributed to this report.