Reuters reports that Merrill Lynch (NYSE: MER) is taking an enormous $5.7 billion write-down on losses from mortgage-backed securities (MBSs) and plans to raise $8.5 billion.

The biggest shocker was, as Reuters reports, that Merrill signed a contract with Singapore's Temasek, a sovereign wealth fund, that requires Merrill to pay $2.5 billion under terms of a previous stock sale to Temasek, along with $2.4 billion in required dividends to preferred shareholders. That's because under its previous deal, Merrill had agreed that if it sold shares at too low a price in the future, it would reimburse investors. Temasek has agreed to purchase $3.4 billion -- or 28% of the new offering. In other words, Merrill is paying an extremely high price for its capital.

The second shocker was how much of a write-down Merrill is taking on its portfolio of collateralized debt obligations (CDOs). Private equity fund Lone Star is paying 22 cents on the dollar, or $6.7 billion for CDOs with a stated book value of $30.6 billion. At that rate, the holders of $2 trillion worth of CDOs outstanding earlier this year would need to take a $1.56 trillion haircut if they sold all the CDOs. And I don't think they have nearly enough capital to be able to afford that.

Sovereign funds from the Middle East, China, and Singapore have invested tens of billions of dollars in U.S. companies, especially banks and brokerage firms. But, as stocks of those companies have continued to fall, the funds have taken huge losses. No wonder they seem to have stopped investing in America.

On example is Morgan Stanley (NYSE: MS). According to The Guardian, "China Investment Corporation's investment in Morgan Stanley, made just before Christmas, is also facing a significant loss. The securities it picked up for $5bn will convert to stock at $48 to $57 a share in two years' time. At present, however, Morgan Stanley's share price is closer to $42."

Sovereign funds have now also lost money, at least on paper, on Citigroup (NYSE: C), Merrill Lynch (NYSE: MER), Advanced Micro Devices (NYSE: AMD), and several multi-national money center banks based in Europe.

The U.S. government and EU have asked sovereign funds to sign covenants that say they will only make investments for financial reasons, that they have no political agenda when they put money into banks and large companies. Even if these funds agree, their losses are likely to keep them out of the U.S. for a long time. That means the government is pushing to restrict the nature of their investments when Wall Street needs their money the most

Douglas A. McIntyre is an editor at 247wallst.com.

Until recently, it appeared that Bear Stearns (NYSE: BSC) had one investor still happy with putting money into the investment bank. That would be China's CITIC Securities. The capital would have given the firm a relationship with a large U.S. financial company. It has some real strategic value.

Over the weekend, CITIC sent a message that was the equivalent of saying "goodbye and good luck" According to Reuters, CITIC stated, "We cannot guarantee reaching a final agreement in the future."

While the news should not surprise anyone, it may just be the tip of the iceberg for U.S. banks and brokerages. Overseas financial institutions have been willing to put money into U.S. firms to get joint ventures in place. Sovereign funds have sent out checks to troubled Wall Street operations because they feel that when the U.S. economy turns, the equity they have purchased will rise in value.

The debacle at Bear Stearns may change much of that. The perception of the risk of putting money into U.S. financial companies may have doubled.

That leaves the Fed as the only check book left.

The European Union has decided to get serious about having sovereign funds from Asia and the Middle East pledge that their investment in the region are "financial" and not "strategic."

According to the Financial Times, "Peter Mandelson, the European trade commissioner, said the code would set out basic standards of governance and transparency for the funds."

Sovereign funds have made large investment in banks and brokerage houses in Europe and the United States and the regulatory authorities do not want these dollars to become a way for the funds to push their nation interests.

The request is a bit two-faced. Funds and corporation from the West have been putting money into Asia and the Middle East for years. Big U.S. companies are not required to sign documents disclosing their intentions when they make investments overseas. Plans by Congress and the EU to push legislation to regulate capital from abroad may back-fire. When U.S. and Europe banks need more cash, sovereign funds may simply elect to invest elsewhere.

Douglas A. McIntyre is an editor at 247wallst.com.

Alibaba, the big Chinese e-commerce company is 39% owned by Yahoo! Inc. (NASDAQ: YHOO). That has been OK for Alibaba; Yahoo! has not taken any role in running the company. But, the firm and the Chinese government are a little worried that Microsoft Corp. (NASDAQ: MSFT) will not see it that way if it buys Yahoo!

According to The Wall Street Journal (subscription required), "Alibaba has already been contacted by Chinese regulators seeking information on how it could be affected by a Microsoft purchase." The concern is perverse for two reasons.

China thinks nothing of allowing its sovereign funds to put capital into U.S. financial companies. Congress has already begun to worry in public that the Chinese might exert unwanted pressure on the managements of some of Wall Street's biggest companies. The Chinese cannot have it both ways, buying into American businesses while setting limitations on investments in its country.

What is even more obvious is that one solution is to have Microsoft simply enter into a legal agreement that makes its shares in Alibaba non-voting. This allows the big software company the advantage of an investment that will probably grow in value, and one that it will probably eventually sell back to Alibaba or even to the Chinese government.

Why make the issue more complicated than it really is?

Douglas A. McIntyre is an editor at 247wallst.com.

It's no secret that America has financed its budget deficits from foreigners. Of course, we also buy tons of goods from foreigners.

Now, Wall Street is pitching foreigners for big slugs capital. So far it's working with more than $90 billion raised within the past few months, according to a piece in the Wall Street Journal.

Actually, this is not a new thing. If anything, the US has a long history of being wild and crazy with finances (examples: crash of 1929, the junk bond binge, the S&L crisis, the conglomerate craze and so on). After all, back in the 1800s, the U.S. financial system relied heavily on foreign sources of capital.

However, this time it's premier financial firms – such as Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER) – that are selling large amounts of equity to some foreign buyers known as sovereign funds.

While no doubt these funds see big-time opportunities as the investments include juicy protections and dividend yields, foreign governments also realize that the U.S. needs to stay afloat. Despite the talk of "decoupling" of the global economy, the fact remains that the U.S. is the mega spender. Foreign governments, therefore, need to play ball with the US.

With the heated presidential election, the sovereign investments are certainly a topic of debate. But Wall Street has moved with incredible speed to complete these investments and has tried to structure the transactions as passive arrangements.

Finally, the Wall Street Journal piece also indicates that there has been lots of enthusiasm from sovereign funds. In other words, based on the due diligence, they see lots of opportunities here – at least for the long-term.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.