Many overseas investors turned out to be dumb money.

When the Kuwaiti government pulled the plug earlier this week on a $17.4 billion investment in a planned petrochemical project in conjunction with Dow Chemical, the news sent stocks south. Although the collapse of the deal itself was substantial, Kuwait's decision reflects a bigger shift.

Until recently, foreign governments would go to nearly any lengths to invest in Western ventures, often through sovereign wealth funds. Traditionally, SWFs parked capital in low-risk, low-return investments such as government bonds. But with the real estate and equities markets going gangbusters in recent years, many succumbed to the promise of easy, hand-over-fist returns. Of course, when the party broke up and the lights came back on, some of these funds were caught with lampshades on their heads.

The problem isn't just the losses. It's the way they're magnified by the broader economic climate. Also, these losses come at a time when these funds' home countries badly need the cash. Many SWFs, particularly those from the Gulf states, were counting on oil at $100-plus a barrel to cushion them through any market fluctuation. In addition, many invested in equities and real estate markets at home as well as abroad, so they're feeling twofold pain as their domestic economies suffer.

As the year draws to a close, The Big Money takes a look back at foreign state-backed investments that, while greeted with enthusiasm at the time, now make as much sense as AOL's 2000 purchase of Time Warner (a deal so ridiculous that even former AOL CEO Steve Case admitted a few years later that the two companies should amicably divorce).

1. In hindsight, you can practically hear this turkey cluck. In 2007, the Chinese Investment Corp. shelled out $3 billion worth of $31 shares when Blackstone Group launched its IPO. This was a deal that was supposed to be a "win-win." Blackstone would have a successful IPO and enough cash to power through its early years as a public company, and China would acquire a nearly 10 percent stake in a major U.S. private equity firm plus a front-row seat to its (now debatable) management expertise.

That's not how it turned out. Today, Blackstone shares trade at a bit above $6, and the CIC is estimated to have lost more than 80 percent of its initial investment. A Forbes.com piece last week noted the "embarrassing losses" suffered by the fund.