Under the terms of the deal, Omaha, Nebraska-based Berkshire will invest $5 billion in Bank of America, the Charlotte, North Carolina-based bank said today in a statement.

Preferred Dividend

In exchange, Berkshire will receive 50,000 perpetual preferred shares with a liquidation value of $100,000 each, according to the statement. The preferred shares pay a dividend of 6 percent per year, and are redeemable at any time by Bank of America at a 5 percent premium. The dividends are cumulative, meaning Bank of America would have to catch up if it skipped any payments.

Berkshire also will get warrants -- a type of options -- to buy 700 million common shares at a strike price of $7.14 each. Investors who value warrants weigh a company's stock price, share volatility and the expiration date.

The Bank of America warrants are good for 10 years, according to the statement. The bank's shares, which had declined 48 percent this year through yesterday, surged as much as 26 percent today.

"It's a package deal," said Jacoby, whose firm specializes in preferred shares. For Bank of America, deciding how much to pay Buffett was probably "a process of how much value do you feel you need to give away in order to change the mood of the market."

David Fuller's view Although few other investors have the wealth and clout to arrange similar terms, might this deal persuade some other value investors that it is time to buy?

Not necessarily, in my view. Buffett has a reputation for being early, so it is not surprising that Wall Street's opening rally on this news was soon reversed. Also, many investors are understandably concerned about the considerable risk of a slide back into recession for the US economy. In that event, talk of US equities being cheap today will prove to have been premature.

Nevertheless, Buffett's purchase should provide some encouragement for nervous investors. As a catalyst, it is probably more significant than anything Fed Chairman Bernanke can say tomorrow.

Mr Bernanke should also consider 'the law of unintended consequences.' When he announced last month that the Fed would leave short-term rates at today's historically low levels until mid-2013, if necessary, investors concluded that the outlook was worse than they thought. Consequently, gold surged higher, long-dated government bond yields plummeted and the stock market tanked.

There is considerable speculation regarding what Mr Bernanke says tomorrow. I just hope he understands that sometimes, 'less is more.'