Think back a few years. What seemed more sensible than investing in venerable U.S. financial services giants? The picture wasn't as rosy as it may have appeared, though.

From a 52-week high of $52 per share, Citigroup(NYSE: C) has recently been trading south of $30. J. P. Morgan Chase(NYSE: JPM) has also been more than halved, falling from a 52-week high of about $41 to less than $20 per share. Morgan founder J. Pierpont Morgan must be rolling in his grave. Just look how happy he is at today's state of affairs.

What's going on? Well, think about all the financial crises and scandals we've heard about lately: Argentina, Enron, Global Crossing, and so on. Big banks have loaned money to these troubled entities, and defaults are far from a remote possibility. (In some cases, these financial services firms also helped scandal-ridden companies devise some of their schemes.)

Another shoe dropped today when J. P. Morgan Chase issued an earnings warning, explaining that its numbers will come in lower than expected due to, among other things, the company's over-involvement in the telecommunications bubble. (Some actually expect there to be no earnings for the quarter.) As one analyst reportedly said, "This is beyond embarrassing for the company." Adding insult to injury, both Standard & Poor's Ratings Services and Fitch Ratings downgraded the company's debt rating, noting "sustained weakness" in some core operations and expected continuation of "challenging conditions."

The upshot for Foolish investors is that while you may think these financial giants sport attractive stock prices now, there may be more pain ahead. Even now-attractive dividend yields may fall, if the firms are forced to reduce dividends. Stay tuned for quarterly earnings reports, out in a few weeks, and perhaps even wait a few more quarters to see how things shake out. Remember that if J. P. Morgan has made bad loans and is suffering in this environment, its peers are likely in exactly the same boat.