Banks Behave Badly Redux: Is It Killing Confidence?

It wasn't supposed to be this.

After the worst financial crisis the Great Depression almost took the global economy over a , tough new regulations and stronger internal controls the world's major banks were meant to help restore confidence the financial system.

But recent headlines some top investors and strategists questioning there has been any progress all.

The horror stories the deepening scandal that big banks rigged Libor, the benchmark international lending ; JPMorgan Chase's mounting losses disastrous credit bets and a possible cover- attempt; and the disappearance of customer funds Iowa futures broker PFGBest, discovered after its founder tried to suicide and left a note outlining 20-year fraud.

Add the problems surrounding the botched trading debut Facebook as well as the insider scandal that led to the conviction of hedge managers and big name businessmen such former Goldman Sachs director Rajat Gupta — and the picture isn't pretty.

The signs of a falloff investor confidence are not hard spot.

U.S. Treasurys, the traditional safe- for risk-averse investors, are drawing big demand though they offer only the slimmest of returns, while U.S. equity mutual funds racked up big outflows.

And even some of that investment trend may reflect the fragility of the U.S. economic recovery, the real problem lies , said Larry Jeddeloh, founder and chief investment officer of the TIS Group, an institutional research firm also manages client money.

"The bigger problem, I think investors are focusing , is confidence in the financial system eroding," he said. "There have been a litany of failures and confidence-reducing events recently should cause anyone with a stock certificate and a heartbeat to think hard what to do with their stocks," said.

Wider Distrust

For many small and some big investors, the recent headline events create a perception that the system can gamed — and that they could money because those who are to manipulate a rate or a stock price or have inside information wield a big advantage, investors and strategists say.

worst, in cases like the failed brokerages MF Global and PFGBest — the echoes of the Bernie Madoff and Allen Stanford Ponzi scams also ringing in investors' — it means that someone could simply raid account and take their money.

It all feeds a wider political backdrop. The speed with the Occupy Wall Street movement gathered pace last year seen by some economists and major investors a growing symbol of the distrust banks and the inability or unwillingness of the authorities to crack on corporate malfeasance and greed.

Almost of the scandals lead to allegations that regulators are asleep at the or simply lack the firepower to keep with the misbehavior.


Adapted and abridged from: CNBC, July 16, 2012.