Stocks up modestly on Buffett-Goldman deal

September 24, 2008 6:58:41 AM PDT
Financial markets are showing some signs of stabilizing following investor Warren Buffett's $5 billion bet on Goldman Sachs Group Inc. Stocks are modestly higher in early trading, but the credit markets are still strained as they await more news about the government's plan to rescue banks from their bad debts. Still, Buffett's move is renewing confidence that U.S. financial firms will survive the credit crisis.

The Dow Jones industrial average is up 8 at the 10,862 level after falling sharply Monday and Tuesday.

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.

Goldman also said late Tuesday it would raise another $2.5 billion in its own public stock offering; 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 Wednesday to brief lawmakers on a $700 billion bailout measure for financial services firms.

Their appearance on Capitol Hill Tuesday unnerved stock investors, who questioned whether lawmakers were beginning to doubt the necessity and form of the government bailout.