Buffett investment into Goldman Sachs sparks confidence

Date: Wednesday, September 24, 2008
Author: Investment Executive.com

U.S. Treasury secretary Henry Paulson and Federal Reserve Board chairman Ben Bernanke will continue to plead their case to congress on the U.S. US$700-billion bailout plan.

U.S. stock market futures headed higher on Wednesday as billionaire investor Warren Buffett invested US$5 billion into Goldman Sachs, marking a significant expression of confidence in the U.S. financial system, despite the fact the US government’s US$700-billion plan is no closer to becoming law.

Goldman Sachs is expected to receive another injection of cash soon as it announced on Tuesday that it would seek to raise US$2.5 billion through a public offering of common equity. On the negative side, American International Group Inc. announced thatit is, in fact, going to take US$85 billion from the U.S. Federal Reserve Board after failing to find financing from the public-sector.

AIG was also on the hot seat Tuesday as the U.S. Federal Bureau of Investigation launched an investigation of four major financial institutions that launched the massive U.S. bailout plan. In addition to AIG, the FBI is investigating mortgage financiers Fannie Mae and Freddie Mac as well as now bankrupt investment bank Lehman Brothers Holdings Inc.

Also on Tuesday, U.S. Treasury secretary Henry Paulson and Federal Reserve Board chairman Ben Bernanke urged swift approval of a plan in which the Treasury would spend up to US$700 billion to purchase troubled assets from banks. But Congress raised questions about oversight of the bailout, the level of relief it might provide to homeowners having trouble making their mortgage payments, and whether the plan should require curbs on executive pay at participating companies, among other issues.

Investors will remain focused on Washington Wednesday as Bernanke and Paulson return to Congress to plead their case. U.S. President George W. Bush said on Wednesday morning in New York that he is confident there will be a robust plan in place once all is said and done.

Meanwhile, at home, Toronto stocks fell Tuesday, posting a second day of losses in a row as investors. The S&P/TSX composite index dropped 105.44, or 0.83%, to 12,532.63.

The Canadian dollar fell to US96.50¢ yesterday, down 0.3% from Monday’s close.

The S&P TSX Venture Exchange fell 37.39, or 2.37%, to 1,538.60.

Back in New York, the Dow Jones gave up 161.51, or 1.5%, to end at 10,854.17, the S&P500 moved down 18.87, or 1.6%, to 1,188.22, and the Nasdaq composite index declined 25.64, or 1.2%, to 2,153.34.