The Due Diligence Derby: Barclays (BCS) Sues Bear Steans (BSC)

Barclays (BCS) has sued Bear Stearns (BSC) over the failure of two of the US companies hedge funds. In particular, the bank says that BSC dumped $500 million of risky investments into one of the funds just before it failed.

The reaction of the US company, according to Reuters, was "While we do not like to see investors or counterparties lose money, we believe this lawsuit is an attempt by Barclays to avoid taking responsibility for its own actions."

Bear Stearns may have done some improper asset dumping. If so, it will probably get into trouble. But the entire fiasco is a miniature portrait of what went wrong in the current credit market meltdown. Sophisticated financial companies bought complex financial instruments from other sophisticated financial firms. The level of research, questioning, and due diligence appears to have been nearly non-existent.

Wall St. will ponder for a long time why, with its advanced research capacity it could be caught so short on the ability to evaluate financial instruments which it, is essence, it created.

It is like looking into a mirror and not recognizing your own face.

Douglas A. McIntyre