Personal Finance: Distrust spreads to Wall Street - Philadelphia Daily News

Posted: 13 Nov 2010 03:53 PM PST

Posted on Sun, Nov. 14, 2010

American voters, angry at politicians and mistrustful of government, gave many incumbents their walking papers.

But there's another protest movement under way that's just as fierce: Investors are dissing Wall Street in addition to purging Capitol Hill.

The trend is expressed in the flow of $56 billion out of the stock market this year, despite the type of rally that typically tempts reluctant investors, and in the hundreds of e-mails I've received. A sampling:

"The Dow could hit 15,000 and no one would care," wrote JK. "With high-frequency trading and scandal after scandal, the average investor has finally wised up and understands he can't beat those guys."

"We are dealing with the devil, which is the banks . . . or make that two devils - the banks and the government - since the entire government stood by and let this happen to the American public," said Larry Kramer. "They have ruined our entire economy."

"Government and big business [have] become corrupted to such an extent by lobbyists and graft that no one has any faith or respect for these institutions," Michael Weiner said.

From what I've seen, many individuals have come to see the stock market as a rigged game.

Outrage in the market

In response to news that baby boomers are not saving enough for retirement, Jane Slupecki wrote: "It is depressing to read that we, the baby boomers, are going to starve to death" if we don't invest for the future. But as she struggles to pay for her daughter's college while watching bailout tax money paying the executives' bonuses, her conclusion is: "I'm not touching the stock market. No way!"

Some of this outrage was tallied at the polls. But you also can tally it in the low volume of trading in the stock market and in the inability of some young companies to expand by raising money through initial public offerings. They are hamstrung because they cannot sell their shares if the public is hesitant to buy.

"Few large IPOs have come to market because investors have shunned U.S. equities," noted Charles Biderman of research firm Trim Tabs in a recent report. Offerings are at the lowest level since 2005.

Muriel Siebert, president of Muriel Siebert & Co. Inc. brokerage firm, said she worries that lasting distrust could deprive the economy of those young companies that become the next global giants such as Microsoft Corp.

More immediately, Federal Reserve Chairman Ben S. Bernanke said recently that one reason he was forcing interest rates lower was to tempt people to buy stock.

Trust is missing

But while Wall Street pundits insist that investors will return to the stock market once they are more certain about the economy, there are impediments that go beyond economic weakness.

Suzanne Duncan, a researcher for International Business Machines Corp.'s Institute for Business Value, has just completed an 18-month study into perceptions of the financial-services industry. She found that trust is sorely missing and that professionals such as pension fund managers are as skeptical as individuals.

They sense that Wall Street has conjured up increasingly complex products that investors cannot understand because they are opaque - or designed specifically so only those who constructed them can analyze them and derive a profit.

Rather than helping investors, the industry is in it to serve itself, 70 percent of investors said. When Duncan surveyed the industry, she found that 70 percent of insiders agreed that they focus on selling products rather than helping clients.

Paul Purcell, chief executive officer of Robert W. Baird & Co. Inc., said the industry must rebuild its credibility, especially the tarnish from Wall Street's wild behavior. He said it would be in the industry's interest to welcome further financial reforms - like controls on leverage or debt levels - so trust can be rebuilt and the financial system would not be in danger of a new meltdown.

Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured article: Beyond Hiroshima - The Non-Reporting of Falluja's Cancer Catastrophe.

Personal Finance

Tuesday, November 16, 2010