It’s never easy to know what do when you win the lottery. So sympathy is due for China and the Gulf states as they attempt to put their trillion dollars of liquid assets to work more effectively than buying US government debt or high-risk bonds.

But it is fascinating to watch how they are becoming an easy touch for US financial institutions caught in a vortex of their own design. First there was Blackstone. Many people smelled a rat when the king of private equity suddenly wanted to go public, enabling its founders to collect a few billion in cash.

China eagerly bought US$3 billion of the stock assuming that this was a gilt-edged American name and probably expecting that Blackstone’s IPO would be like a Chinese one – immediately going to a huge premium that would enable those with the pre-IPO inside track to exit at a huge profit. Unfortunately, the Blackstone issue just happened to be superbly timed (from the vendors’ viewpoint) to subject the Chinese to almost instant big losses.

They would of course learn: buy distress not euphoria. So it seemed an easy bet when along came Citigroup crying to the bloated sovereign wealth funds for new capital to plug the holes left by having to bail out special investment vehicles that supposedly had never been on the balance sheet in the first place.

Even low-profile Abu Dhabi was so thrilled to be asked to rescue America’s biggest financial institution with a $7.5 billion injection that it barely bothered with due diligence – such as whether or not Citi had been presenting bogus accounts on the balance sheet in the first place. If they did not have contingent liabilities in respect of their illegitimate progeny, why did they take them in-house? Has Citi suddenly discovered compassion for the sick and dying? It seems unlikely.

But it stroked egos to be asked to lead the bailout and help out not just America but its big Saudi mate Prince Alwaleed. The prince had done rather well by bailing out Citi the last time it screwed up and doubtless Citi dreamed that if Abu Dhabi did the same the stock would be up five-fold in no time at all. The Saudi prince was of course very supportive – otherwise he would have had to dig deep into his own pocket.

The Chinese, meanwhile, are obsessive enough about designer labels to know that neither Blackstone nor Citi are quite top rank. More quantity than quality, perhaps. They didn’t need to keep looking into shop windows long before a “sale of the century” sign started flashing at that oldest of names, Morgan Stanley, now No. 2 in Wall Street’s pecking order of over-remunerated speculators. It did not do any harm that the Hong Kong-based boss for China was none other than Stephen Roach, an amiable economist who had been sent there because he was bullish about China while being mega bearish about most other places, especially the US.

China now thinks it has got a bargain by getting 9 percent of Morgan Stanley for filling a little hole in the balance sheet caused by that dubious debt normally described as “sub-prime” but actually including a lot of junk previously accorded “A” status by the best rating agencies that money can buy. This is, of course, just a one off event and Morgan Stanley will soon be back on track to make billions from some new device to skin the gullible.

China thinks these are good deals. Morgan Stanley and Citi think that with huge official foreign shareholders they now have an inside track to all kinds of flotations, bond issues, mergers, etc. on the mainland. Even more offspring of Chinese Communist party bosses will get into Harvard and Wharton and before long will become “rainmakers” for the Wall Street types.

Maybe they are right and Blackstone, Citi and Morgan Stanley will be seen as great bargains, magic words to open the secret inner doors of western finance. But the perspective of this observer is that in downturns the problems of financial institutions are worse than those of other groups, and they end up being far worse than anyone imagined when problems were first reported. Every such event causes at least one huge collapse, be it an Enron, a Drexel Burnham, a Slate Walker, a Franklin National ad infinitum.

China will of course have been mighty impressed that the biggest name on Wall Street, Goldman Sachs, is – we are told – still doing just fine at the expense of others. This must give former boss and now US Treasury Secretary Hank Paulson much face in his dealings with Beijing. The guys who invented some of the financial games have kept enough of the know-how not to get caught on the wrong side. Yet.

But if further disasters await, one must wonder if it does much good for the western institutions to be part Beijing-owned. The more such investment funds and companies the Chinese have, the less clout and advantage any one foreign institution has in China, yet the greater the susceptibility to criticism at home for their China connections. This could be the opposite of a win-win deal.