Stocks were little changed in Wednesday morning trading as uncertainty about when Congress might act on a proposed $700 billion bailout overshadowed news of Buffett's move.
"I am to some effect betting on the fact that the government will do the rational thing and act properly," Buffet, one of the world's richest men, told CNBC.
Buffett, though, said financial markets remained in a "dangerous situation."
Buffett's move comes days after Goldman Sachs announced that it would turn itself into a traditional bank holding company to ensure its business viability. Goldman Sachs and Morgan Stanley both decided to shift to the bank holding model to increase the amount of financial resources available to the firms while also agreeing to tighter government regulation.
The decision essentially brought the era of the investment bank, long synonymous with Wall Street, to an end.
For his investment, Buffett and his company. Berkshire Hathaway, one of the world's largest and most successful insurers, will receive 43.5 million Goldman Sachs shares, at $115 a share within five years. Goldman Sachs also announced Wednesday that it would sell $2.5 billion in common stock.
Japanese news media reported Wednesday that Japan's third-largest bank, Sumitomo Mitsui Financial Group, will also invest in Goldman Sachs. Japanese financial firms have already moved to take advantage of the U.S. market upheaval, snapping up Lehman Brothers assets and a stake in Morgan Stanley.
Still, many market watchers see Buffett's move as a welcome sign of confidence in the teetering U.S. financial sector.
"When one of the highly respected value investors puts up that amount of money, it suggests, on the surface, that when Buffett jumps in the pool others may follow," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey told the AP. "That says to investors that all is not lost."
As evidence of continued doubts, however, the Federal Reserve was forced to supply another $2 billion to help mutual funds meet the heavy demands of withdraws from nervous customers.
Meanwhile, the Bush administration and Congress entered their third day of wrangling over a proposed $700 billion bailout plan, with the government's two top economic policy makers, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke set to testify before the House today.
The administration has found little support within Capitol Hill for the proposed rescue plan, with both Democrats and Republicans lining to up to criticize a proposal that many say will plunge Americans into debt for generations, only to bail out those who recklessly invested private money.
"The consensus is: A, people don't like it; B, it will have to change; and C, we have to do something," Sen. Charles Schumer said on CNBC. "I certainly think we'll get it done before we adjourn. The odds are very high that it will happen."
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