Issue of the week: Can Warren Buffett save the market?

“Short, septuagenarian, and bespectacled, Warren Buffett does not resemble a typical superhero,” said The Economist. But over the course of several days, the 78-year-old Berkshire Hathaway CEO last week came to the rescue of two struggling giants. Goldman Sachs looked as if it was headed toward the same fate as the failed Lehman Brothers until Buffett “swooped” in and pumped $5 billion into the once-mighty firm. Then Buffett gave General Electric a much-needed boost of confidence with a $3 billion purchase of preferred stock, with an option to buy another $3 billion of GE common stock at a bargain price of $22.25 a share. The terms of both deals are “fantastical”—so much so that were Buffett not planning to eventually give away his fortune to various philanthropies, he might be accused of “taking advantage of the desperate.”

Buffett’s “folksy” image and investment prowess have “elevated him to a kind of status only previously enjoyed by Santa Claus,” said David Litterick in the London Daily Telegraph. Indeed, at this week’s presidential debate, both Barack Obama and John McCain mentioned him as a possible secretary of the Treasury. “But unlike Santa Claus, Buffett demands as much as he gives.” Among other things, before he invests, he wants to see “consistent track records, strong margins, and an avoidance of too much debt.” Moreover, Buffett invests only in companies whose businesses he understands. Goldman Sachs and GE met those criteria, and given the extremely favorable terms, the deals were hardly acts of charity. In fact, Buffett is “happy to profit from others’ misfortune.” As the “Sage of Omaha” likes to say, “You want to be greedy when others are fearful and fearful when others are greedy.”

Many are comparing Buffett’s role in this financial crisis to that of J.P. Morgan’s or John D. Rockefeller’s in previous economic meltdowns, said Ben Steverman in BusinessWeek. But Buffett won’t be able to single-handedly stem the market free-fall as these industrialists did. “In fact, in the short term, Buffett’s Goldman and GE deals might merely emphasize the current difficulties.” The fact that Goldman Sachs and GE, “two premier U.S. enterprises,” would even need Buffett’s cash says a lot about just how far they’ve fallen. It’s also not entirely clear that “Buffett’s buying spree” will prompt other investors to pour cash into these companies. Most investors aren’t privy to the terms that have been given to Buffett, nor do they have billions of dollars to spare.

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Buffett may be sitting on a big pile of cash, but his buying binge can’t go on indefinitely, said Andrew Bary in Barron’s. Berkshire Hathaway had about $28 billion in cash as of the end of the second quarter. But the recent flurry of investments, including a $6.5 billion deal with Mars to buy out Wrigley and a $3 billion commitment with Dow Chemical, could bring Berkshire’s cash to about $10 billion. Buffett may have a couple more items on his wish list, starting with American Express; Berkshire is already the company’s largest shareholder. Still, don’t count on Buffett’s spending down all of Berkshire’s cash. Not one to take on too much risk, Buffett will probably want to keep a hefty sum on hand, just in case. Right now, Buffet is the “go-to guy for corporations looking for capital, and more important, a vote of confidence.” But he’s only one man, and he won’t live forever.