US Economy: Warren Buffett to invest $5 billion in Bank of America "and makes out like a bandit " - by Ben Berkowitz and Joe Rauch,

Buffett and the Bank of America said he made an unsolicited call to the bank on Wednesday morning, offering to make an investment. Even though the bank has said it did not need to raise capital, investors widely believed the bank needed more money and to show it could raise funds easily. The deal proved again that Buffett has become something of a lender of last resort to the financial system, as he did with Goldman and also GE. Buffett’s role in aiding the economy and the financial system has become symbolically important given the lack of policy options left for the U.S. government and the Federal Reserve to stimulate demand.

Buffett’s Berkshire Hathaway will in many ways make out even better financially than the Bank of America did in the deal. Berkshire had a position in the bank that he sold in the fourth quarter of 2010 when the stock had an average price of $12.24. The warrants to buy 700 million shares of common stock he gets in this deal are priced at just over $7.14 per share, with an unusually long 10-year exercise period.

One long-term Berkshire shareholder said the warrants were the best part of the deal by far. “He could well make a 100-per-cent return on his investment in a few years,” said James Armstrong, president of Henry H. Armstrong Associates.

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