The chairman of the American Federal Reserve Board, Ben Bernanke, has found it impossible to calm the panic arising from the sub-prime crisis. Yet all it took was a few casual sentences from Buffett last week to garner headlines around the world and quell a raging storm. Again.
For a few brief moments early last week, it looked as if the world's markets were facing another of those "black" days which pepper modern financial history.Wall Street was teetering on the brink of crashing as the shockwaves from the sub-prime mortgage crisis - in which banks had lent vast sums to high-risk borrowers who were unable to pay back the loans - continued to reverberate.
This time, it was the turn of an obscure branch of financiers - the monoline insurers - to feel the heat. The main job of these little known, secretive companies is to protect institutional investors in bonds against risk.
Basically, if an institution buys a bond, it can take out insurance to cover repayment of the original investment plus the interest.
This is an arcane branch of finance - but vital. If the monolines fail, it could have a devastating impact not only on banks but also on the budgets of thousands of towns, cities and municipalities which had taken out insurance to protect them against losses on their fund-raising bonds.
The effects of such failure would have been catastrophic - and swept around the world.
As share prices from Hong Kong to Wall Street and the City of London shuddered at the very thought, a 78-year-old in Omaha, Nebraska, appeared on television.
If people were worried, he said, then he would shoulder some of the $800bn of insurance risk. "It can be solved at one stroke of the pen," he said.
It was an offer which even for Warren Buffett, with his Midas touch and willingness to take on risks greater than anyone else involved in investment, was audacious in the extreme.
After his intervention, market confidence returned. Share prices rallied across the world with the FTSE 100 index in London climbing 3.5 per cent in a matter of minutes. The Dow Jones also soared. The very suggestion that Buffett might be interested in saving the monoline insurers was enough to convince the financial herd that all might not be lost.
With a big smile, mid-Western drawl and a few gentle words, Warren Buffett saved the day. [...]
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