Warren Buffett Helps Goldman Sachs Sedate Bears

History is repeating itself. When markets look on the verge of collapsing, rich investors sometimes buy shares to prop up shareholders’ faith, hoping to staunch a sell-off.

This year, it’s Warren Buffett’s turn. From Bloomberg:

Goldman Sachs Group Inc. raised $5 billion in a stock offering, twice the amount the firm originally sought, after gaining an endorsement and a $5 billion cash infusion from billionaire investor Warren Buffett. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 fueled fears about the vulnerability of firms that rely on short-term funding from the capital markets.

“The endorsement of Warren Buffett should quickly end credit-market debate about the capitalization and liquidity position of Goldman Sachs,” Brad Hintz, an analyst at Sanford C. Bernstein & Co., said in a note to clients today.

This isn’t the first time a really rich person has bought significant stock in a faltering market to stop it from crashing. At the beginning of the Wall Street Crash of 1929, a number of eminent Wall Street bankers pooled their money and bought large amounts of stock to reassure the markets. The Rockefeller family did the same thing.

It didn’t work. But Buffett, possibly the most cool-headed, self-interested investor on the planet, is making sure he gets a piece of the action, too:

“…Mr. Buffett has struck an extremely attractive deal,” wrote another analyst. “He is, we believe, getting a better deal than he did in 1987 when he bought a Salomon Bros. convertible with a 9 percent yield, for a company that is considerably more attractive than the ’87 Salomon.”

“Management is likely hoping that the raise will reduce any doubt — not just the market’s, but also ratings agencies’ — about balance sheet risk,” a third analyst wrote in a note today. “That in turn will lower its funding costs, which should put the bears to bed.”

History has proven that billionaires, try as they might, are bad at tranquilizing bears.

If the Goldman analyst’s bear is falling asleep, it’s because the critter is snug inside his massive grizzly momma’s belly.

  • I think its safe to assume that Buffett is the Rockerfeller of the day. He’s been very very patient passing on deal after deal, but it seems he’s found his company of choice. With Buffett leading the way for investors I believe this will be viewed very positively thereby giving the market a much better overall sentiment. However if Buffett were to renege on the deal, like BoA to LEH, then this could create the largest dump we’ve seen in the market. Lets hope this paves the path for the re occurrence of large cash infusion as was the case during the 29’ Crash. I’ve got my fingers crossed.

  • Confusion reigns as the US struggles to cope with a potential economic disaster where even experts don’t have a definitive fix. In conditions of ambiguity and conflicting opinions, one of the worst coping tactics is “find-an-enemy-and-lose-your-confusion.” This defense gets rid of confusion only temporarily, by accusing the other side of deception, ignorance, misguided policies, etc. The underlying confusion remains. Where do we turn? Much as we would like to believe in Buffett, his defenses against confusion are no more profound than outs, though better funded.
    Read more about this and some 20 other defenses against confusion in “Lethal American Confusion” described on http://www.AmericanConfusion.com.

  • Great read 353bill303, I enjoyed it.

  • Thanks, OilyGasMiner. Keep those fingers crossed. Maybe a toe or two, too.