Not so long ago, when Wall Street's best and brightest investment banks first started reeling from the credit crunch, sovereign wealth funds from around the world came riding to the rescue. Need to shore up your bottom line after a few billion dollars worth of write-downs? The Abu Dhabi Investment Authority or Singapore's Temasek Holdings were here to help.

In January, in "How Wall Street Broke The Free Market," I wrote about how both the left and right in the United States were wringing their hands at the prospect of foreign governments buying such big stakes in elite American financial institutions.

Not too worry! Eight months later, reports the Wall Street Journal in a big page one story (warning, ominously, that the credit crisis "could be entering a critical stage,") foreign governments aren't so eager to spring to the aid of beleaguered Americans.

Stung by mammoth losses on those investments, many investors are now balking. Sovereign-wealth funds, many of them facing criticism at home over the investments, have stayed on the sideline as Lehman and other firms have struggled to raise capital.

So what's worse -- getting bailed out by authoritarian petro-states, or being deemed too shaky an investment to be worth the trouble?

Raising adequate capital to weather the credit crunch storm is getting tougher and tougher for everybody, including commercial banks such as Washington Mutual, reports the Journal. Not only are foreign investors getting skittish, but some potential local white knights are running into problems. Private equity firms, for example, are limited to ownership of no more than 25 percent of a deposit-taking financial institution before they must be considered a bank-holding company subject to federal regulation.

Executives from such firms as Carlyle Group and Blackstone Group have been using the credit crunch to lobby the Office of Thrift Supervision and the Federal Reserve to allow them to own bigger stakes of financial firms without having to face regulation.

That's a good one. Because clearly the answer to Wall Street's problems over the last year is less regulation.

UPDATE: Of course, moments after I publish this post, the Financial Times reports that the Chinese Investment Corporation is a member of consortium of parties putting together a bid for Lehman. China's not afraid!