Buffett buys stake in Goldman Sachs

Super-smart investor Warren Buffett (pictured), who according to Forbes magazine eclipsed his friend and sometime bridge partner Bill Gates as the world's richest man earlier this year, with a fortune of $62bn, has taken a $5bn stake in Goldman Sachs. Given his views on corporate excess some might think it a strange punt, but this is not the first time Buffet, who heads up the Hathaway Group, has been involved with troubled American merchant banks.

Wall Street old-timers recall when, 17 years ago, Buffett stepped in as chairman of Salomon Brothers to help the firm recover from a government bond scandal that had threatened to destroy it. While the Goldman of today has few parallels with that wild period in Salomon's history, it does offer a handy insight into how he views such financial leviathans and the way they operate.

Writing to shareholders in 1997, he observed: "I think of my Salomon experience as having been both fascinating and instructional, though for a time in 1991-92 I felt like the drama critic who would have enjoyed the play except that I had an unfortunate seat. It faced the stage." (Continued below)

At the bank's annual meeting this year, an otherwise light-hearted video included a sobering clip of Buffett testifying before Congress on Salomon's behalf, in which he muses presciently on banks that have grown "almost too big to manage effectively from a risk standpoint". In the same clip, his long-time business partner, Charles Munger, was less charitable. He said: "It's a crazy culture of greed and over-reaching and over-confidence in trading algorithms. It's quite counterproductive for the country."

The action Buffett took against this excess - slashing bonuses – would be unlikely to please the masters of the universe at Goldman's.