Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Buffett Pans for Goldman


Oracle of Omaha tosses $5 billion life preserver to financial markets.

You can almost hear the sound of sheep falling into line, clamoring to follow the lead of the world's greatest investor.

After the market closed yesterday, Warren Buffett -- bottom fisher extraordinaire -- announced he would be making a $5 billion investment in Goldman Sachs (GS). Financial commentators are now eager to take the Oracle of Omaha's entry into the financial fray as a sign of the long-awaited bottom.Minyanville's Why Wall Street Will Never Be the Same

However, as the Wall Street Journal notes, Buffett's last foray into Wall Street -- his 1987 investment of $700 million into Solomon Brothers -- immediately preceded October's market crash. Ultimately, Buffett profited handsomely from the trade after Citigroup (C) folded the once-proud investment bank into its massive operations - but only after serving a 9-month stint as Solomon's interim chairman, which he described as "far from fun, [but] interesting and worthwhile."

This time around, Buffett took down preferred shares that pay out 10% and warrants giving him the right to buy $5 billion of Goldman stock at $115 per share, or around 10% of the company's outstanding equity. Goldman popped on the news in after-hours trading; if the $135 last trade holds when markets open this morning, Buffett will have already booked around $900 million in profits. Not bad for an evening's work.

Coming on the heels of Morgan Stanley's (MS) capital infusion of $8 billion from Mitsubishi Finance, the largest bank in Japan, the inevitable question is now: Does Buffett's validation of the Goldman brand -- coupled with the massive bailout rambling its way through Washington -- mark an end to the credit crisis that has intensified to seemingly apocalyptic proportions in recent weeks?

Treasury Secretary Hank Paulson, the architect of the $700 billion financial aid package, weighed in with his answer today during his testimony before the Senate Banking Committee. When asked if he believed the bailout would calm the roiled financial markets, Paulson responded that financial markets would stabilize only when American home prices stop going down.


The credit crisis is bigger than one man, irrespective of how adept his investment decisions may be. It's bigger than one firm, no matter how deftly its traders navigate choppy markets. The deleveraging that's under way, which the Federal Reserve will try to prevent with hyperinflation and false price discovery, isn't something that can be corralled over a weekend or during a hectic week in Washington.

While Buffett's move may provide extra fuel for already historically volatile markets, it's unlikely to do much to stabilize home prices, or to loosen up the massive oversupply of residential real estate that continues to force them downward.

If Paulson's own assessment of the situation is accurate then, fundamentally -- still -- nothing's changed.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos