Business | Markets
Buffett instills confidence in markets
Wall Street faced a second day of political wrangling over a proposed $700 billion bailout for troubled banks, as billionaire Warren Buffett gave the transformed fiscal landscape a vote of confidence with a $5 billion investment in embattled banking titan Goldman Sachs.
- Agencies
- Published: 23:39 September 24, 2008
New York: Wall Street faced a second day of political wrangling over a proposed $700 billion bailout for troubled banks, as billionaire Warren Buffett gave the transformed fiscal landscape a vote of confidence with a $5 billion investment in embattled banking titan Goldman Sachs.
As Ben Bernanke, Chairman of the Federal Reserve, and the Bush adminstration ramped up their campaign to pursuade the US Congress to accept a rescue plan to steer the world's largest economy out of its worst crisis since the Great Depression, Buffett signalled continued concern, saying markets remained in a "dangerous situation."
"I am to some effect betting on the fact that the government will do the rational thing and act properly," Buffett, chairman of Berkshire Hathaway and one of the world's richest men and pre-eminent stock-pickers, told CNBC.
US Senator Charles Schumer said top Demo-crats in Congress were committed to passing some sort of emergency measure before lawmakers adjourn in the next few days.
"The consensus is: A, people don't like it; B, it will have to change; and C, we have to do something," Schumer said on CNBC. "I certainly think we'll get it done before we adjourn. The odds are very high that it will happen."
On a high
US stocks prices opened higher, emboldened by Buffett's investment in Goldman Sachs, but then seesawed in later trading.
"When one of the highly respected value investors puts up that amount of money, it suggests, on the surface, that when Buffett jumps in the pool others may follow," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey. "That says to investors that all is not lost."
Other nations braced for fallout from the crisis. Business confidence weakened in Germany, France and Italy in September, surveys showed, stoking fears that the euro zone is sinking into recession as the effects of US financial market turmoil spread.
But EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the European Union does not need a US-style plan to buy up toxic assets with public money to restore confidence.
"The situation we face here in Europe is less acute," Almunia told the European Parliament.
US lawmakers mulling the size and content of the bailout will consider an FBI investigation of potential mortgage fraud involving firms and senior executives at the heart of the financial crisis.
The FBI is investigating Fannie Mae, Freddie Mac, Lehman and AIG, expanding its inquiry into corporate mortgage fraud, officials said on Wednesday.
Investment
Buffett's Berkshire Hathaway will buy $5 billion of Goldman perpetual preferred stock. It also will receive warrants to buy $5 billion of common stock, or 43.5 million shares, at $115 per share, within five years, which could give the US's second-richest man and his investment vehicle roughly nine per cent of Goldman.
Shares of Goldman, which also sold $5 billion of common stock in a public offering, rose 4.4 per cent.
Japan's Sumitomo Mitsui Financial Group, also plans to invest in Goldman, Jap-anese media reported.
Already this week, Jap-anese firms have bought Lehman assets and a stake in Morgan Stanley as they take advantage of global upheaval to expand abroad.
Sumitomo has had a long relationship with Goldman.
While billions of dollars have poured in to buy up operations and stakes on Wall Street this week, political debate rages over the extent to which the US government should help financial firms stranded with toxic assets.
The financial crisis has become the No 1 issue leading up to the November 4 US presidential election, and many lawmakers seeking re-election want to appear vigilant.
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