Buffett Steps In

In a move reminiscent of J.P. Morgan’s attempt to salvage Wall Street in 1929, billionaire investor Warren Buffett invested 5 billion dollars in Goldman Sachs Group Inc. Berkshire Hathaway Inc., owned by Buffet announced it was purchasing 5 billion in preferred stock and indicated a future purchase of 5 billion in common stock. Stocks stabilized following Buffett’s investment but credit markets are still awaiting more news about the US government’s plan to bailout banks. Interbank forex lending has all but ceased and central banks are hoarding the dollars and gold in their possession.

Goldman Sachs also announced it will offer 5 billion in common stock to the public. Goldman Sachs and Morgan Stanley were granted approval to become bank holding companies and it is hoped that this will allow them to strengthen their balance sheets.

Although Buffett’s move calmed skittish investors, the financial world is awaiting today’s appearance of Treasury Secretary Paulson, former CEO of Goldman Sachs, and Federal Reserve Chairman Ben Bernanke. Although there is significant opposition to the bailout from Democrats and conservative Republicans it is hoped that the bailout will proceed quickly.

The Effect On Interbank Forex Markets

All these events have created uncertainty in the Interbank Forex markets despite the efforts of several central banks around the world. The Federal Reserve acting with Australia and Scandinavia moved to provide liquidity while Europe, Britain, Japan and Australia pumped billions of dollars into their respective banking systems. Once a bastion of liquidity, the short term lending markets where banks lend to each other has come to a grinding halt due to concerns of the creditworthiness of borrowers.

The Struggling Dollar

The dollar continues to struggle on Interbank Forex markets due to uncertainty about the financial position of the US and the perceived political opposition to the bailout of financial institutions by the government. The dollar has fallen against the Euro but is rising against the Japanese Yen.

Interbank Forex Conditions Remain Uncertain

Until the terms and conditions of the US bailout become clear, markets, including the Interbank Forex, are facing uncertain conditions. Investors around the world are hoping for a quick and solid solution to the volatility of this weeks markets.