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Financial markets gave mixed signals today (Sept. 24), with stocks stabilizing following investor Warren Buffett’s $5 billion bet on Goldman Sachs Group Inc. but the credit markets showed added strain as they await news about the government’s plan to rescue banks from crippling debt, according to the Associated press.
Buffett’s Berkshire Hathaway Inc. said Tuesday it was investing at least $5 billion in Goldman – a move Wall Street took as strong sign of support for the independent investment bank model. Besides buying $5 billion in preferred stock, Berkshire also got warrants to buy another $5 billion in Goldman’s common stock.
(In July 2005 Berkshire Hathaway Inc. bought privately owned Forest River. Berkshire Hathaway Inc., Omaha, Neb., in 2007 had $118 billion in revenue from such diversified subsidiaries as GEICO, Dairy Queen, Helzberg Diamonds and World Book Encyclopedia.)
Goldman Sachs also said it will sell $5 billion worth of common stock to the public; the company and Morgan Stanley earlier this week were granted approval to become bank holding companies, which would help them strengthen their balance sheets.
Though Buffett’s move soothed nervous investors, it could also lead to new questions from lawmakers for Treasury Secretary Henry Paulson, a former co-CEO of Goldman Sachs. He and Federal Reserve Chairman Ben Bernanke are scheduled to appear before Congress for a second day today to brief lawmakers on a $700 billion bailout measure for financial services firms.
Their appearance on Capitol Hill Tuesday unnerved investors, who questioned whether lawmakers were beginning to doubt the necessity and form of the government bailout.
In the first hour of trading today, the Dow Jones industrial average fell 16.25, or 0.15%, to 10,837.92. The Dow is down more than 4% for the week.