Warren Buffett, calling the current market turmoil an “economic Pearl Harbor,” said his $5 billion investment in Goldman Sachs is an endorsement of the Treasury's $700 billion bank rescue plan.
“I am betting on the Congress doing the right thing for the American public and passing this bill,” Buffett said Wednesday on cable channel CNBC. “I certainly have a vote of confidence in Goldman and vote of confidence in Congress.”
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are pushing Congress to approve the bailout. Buffett is buying a stake in New York-based Goldman after three of the investment bank's biggest competitors collapsed or were forced into emergency sales.
“I think the Treasury will pay back the $700 billion and make a considerable amount of money,” Buffett said. He said if he had $700 billion on the government's terms to buy distressed assets, he would. “Unfortunately, I'm tapped out.”
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Goldman will pay 10 percent interest and give Buffett's Berkshire Hathaway the right to buy $5 billion in common stock in the next five years at $115 a share. The stock closed at $133 Wednesday, up 7.9 percent.
Buffett, 78, has frequently scolded Wall Street for shoddy accounting and risky investments.
Michael Yoshikami, president and chief investment strategist for YCMNet Advisors in Walnut Creek, Calif., which manages $1 billion, including Berkshire shares, said Buffett's investment will pay off.
“It's a deal that will be quite lucrative for Berkshire Hathaway shareholders,” Yoshikami said. For financial firms, “this suggests the world is not coming to an end.”
Buffett chooses where to put Berkshire's money by focusing on companies with what he considers strong managers and a market-leading franchise.
He has agreed to spend at least $25 billion this year to acquire companies, finance buyouts and purchase securities for Omaha-based Berkshire.
“It's nice to have a lot of money, but you know, you don't want to keep it around forever,” Buffett said. “I prefer buying things. Otherwise, it's a little like saving sex for your old age.”