Buffett chips in $3B to bolster GE

NEW YORK -- At a time when banks are hoarding cash, stock investors are selling and Congress is eyeing an economic rescue plan, billionaire investor Warren Buffett is buying.

Buffett, known for buying great companies at depressed prices, put his good name and substantial checkbook behind GE, which became the latest company to take steps to bring in fresh capital.

Buffett bought $3 billion of perpetual preferred GE stock that pays a fat 10% dividend for a full three years. He also received warrants that will give him the right to buy $3 billion of GE common stock at $22.25 per share anytime within the next five years. GE shares closed down $1 at $24.50.

In a statement, Buffett said: "GE is the symbol of American business to the world. … I'm confident GE will continue to be successful in the years to come."

Vahan Janjigian, author of Even Buffett Isn't Perfect, says it is likely that Buffett's investment will be a successful one. "He is sending a message that GE is incredibly cheap, especially given the loss of confidence in the market right now," he says. GE shares are 42% off their 52-week high.

But while the fact that Buffett is putting his seal of approval behind GE is a plus, GE's need to raise capital suggests just how fragile markets are right now.

GE said it would raise an additional $12 billion by selling more stock to help it weather the credit crisis. The conglomerate, which gets nearly half of its revenue from its financial arm, GE Capital, has seen its stock sink and its borrowing costs spike amid fears that its finances could be harmed by the credit crisis. Making things more difficult, GE also borrows a lot in the short-term commercial paper market, which has become increasingly expensive.