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Why Warren Buffett injects $5 billion in Goldman Sachs?

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 24, 2008

Investment or Manipulation? Still when Warren speaks, a lot of people listen. My sentiments exactly! Im sure Buffet has alot at stake. If you read up the Great Depression in the 1920s, many big names during that time have been holding up the stock prices through buying and expressing of confidence. All can only delay but not stop the inevitable.

The deal, marking one of the largest expressions of confidence in the financial system since the credit crisis began to intensify in recent weeks. Warren Buffett has secured another great deal during this great financial turbulence by investing $5 billion in Goldman preferred shares, which has 10% dividend yield. On top of that, Berkshire also will get warrants granting it the right to buy $5 billion of Goldman common stock at $115 a share, which is 8% below the 4 p.m. closing share price Tuesday of $125.05. At Goldman’s roughly $50 billion market value, based on that closing price, exercising those warrants would give Berkshire about a 10% stake in Goldman.

With this deal, Buffett is banking on government intervention succeeding in greatly lowering the risk that Goldman Sachs gets into deep trouble. For such a bet, I’d say Buffett got a great deal by waiting things out and not investing until he figured the odds were stacked strongly in his favor.

Their plan was to buy $700 billion of whatever junk got thrown at them by men in pinstripes who got paid very, very well for many, many years while they made some very, very bad decisions they now regret.

We wonder what else Paulson and Bernanke will want to buy to prop up the system: old, expired lottery tickets, perhaps?

Has Warren Buffett seen the bottom of the free-falling market?

I suppose everyone is allowed to make one mistake. It’s a shame that this one will cost WB $…B. The shorts will have a feeding frenzy, if they’re ever allowed back into the market. Buffett has a better long-term track record over decades than anyone else, so stop whining and watch what he says and does and learn.