By James Ledbetter

It wasn’t a huge surprise to learn Thursday that private equity firm Bain Capital is bailing on its plan to acquire 3Com Corporation (COMS). For months, the proposed $2.2 billion takeover of this once high-flying network equipment maker has been kicked around, debated, and renegotiated, which kept the stock artificially high. Some people in the U.S. government have a problem with the proposed deal because Bain’s minority partner in the deal, Huawei Technologies, is linked to the Chinese army. The deal had to be reviewed by the Committee on Foreign Investment in the United States (CFIUS), and Bain cited the group’s opposition in a press release as the reason for backing out of the deal. That claim has been uncritically accepted by most of the media; the New York Times headline on a Reuters story, for example, reads “Opposition Leads Bain To Call Off 3Com Deal.”

That’s sloppy journalism reflecting sloppy thinking. First off, the Reuters story contains no comment from the CFIUS, a division of the Treasury Department. Back in February, Bain and Huawei withdrew their application before the committee because they thought it might not pass muster. (Especially at issue is a 3Com unit called TippingPoint, which supplies online security software to the Pentagon.) But it also seemed pretty clear that selling that unit would probably have allowed CFIUS to pass on the deal (even if a few members of Congress continue to grumble), and by the end of February the companies had reportedly agreed to give it another go, especially because it it very rare for CFIUS to nix a takeover outright.

So did CFIUS actually kill the deal? The Bain press release says “CFIUS made clear that it intended to take action to prohibit the proposed transaction.” But I can’t find any statement from them to that effect. I’ve e-mailed the Treasury Department to check (will they respond on Good Friday? Don’t know). The Boston Globe’s coverage this morning was a little more skeptical, quoting an IDC researcher who said: “To me the national security concerns were overblown.” 3Com, for its part, says that Bain’s reasons were invalid and that it will pursue the $66 million termination fee in the deal’s terms.

Think about it this way: One of the big advantages that private equity shops are supposed to have is stellar risk management. Is it plausible that Bain’s high-charged analysts were unable to anticipate government opposition, and factor that into their takeover plan? Is it plausible that they couldn’t find some way - selling the TippingPoint unit pre-takeover, or finding a new partner altogether - to overcome government objections?

I don’t buy it. I think what happened is: In the months since this deal was announced, 3Com’s business - like that of many technology firms - has shown serious signs of weakness, and is simply not worth the amount originally offered. Bain calculated that the termination fee - or a few million in legal fees fighting it off - was a cheaper way out, and they used the government as an excuse. Which is actually pretty shrewd, but journalists ought to at least be poking at the cover story.

Wall Street could be in for another nasty-tasting serving of alphabet soup. In the wake of the debt market messes tied to collateralized debt obligations, or CDOs, and structured investment vehicles, or SIVs, Bloomberg reports that big banks could now face losses on another obscure asset class: variable interest entities, or VIEs.

The industry has already taken tens of billions of dollars of writedowns on CDOs and other mortgage-related securities. Now, Bloomberg reports, troubles in financing VIEs - another type of financial structure that lets firms keep risky assets off their balance sheets - could add new losses to the toll. Estimates of possible losses range from $30 billion at Moody’s to $88 billion at CreditSights, Bloomberg reports. Firms could have to recognize losses tied to the VIEs if they are forced to provide financing to the entities, as they did in the case of the SIVs that ran into financing trouble this fall. Beyond the usual suspects, such as Citi (C) and Merrill (MER), Bloomberg says the VIE mess could even touch two firms that have largely steered clear of the subprime swamp - Goldman Sachs (GS) and Lehman Brothers (LEH).

One factor working in the banks’ favor is that for now, it appears that bond insurers Ambac (ABK) and MBIA (MBI) are going to hold onto their triple-A ratings, forestalling a downgrade that could have forced the banks to backstop the VIEs. But that doesn’t mean the issue is going away. A top S&P exec told Bloomberg that “the disclosure on VIEs is hopeless,” which means investors in financial firms have just one more worry to add to an already sizable list.

Another private equity buyout bites the dust. 3Com (COMS) fell 20 percent in early trading after the struggling networking company said it and its buyers at Bain Capital had withdrawn their merger application with the Committee on Foreign Investment in the U.S., or CFIUS. The $2.2 billion deal was contingent on approval by the federal panel because Chinese networking company Huawei was a minority participant in the buyout, and because of 3Com’s computer security sales to the Defense Department.

Bain’s plan to buy 3Com never looked like a sure thing: As Fortune’s Nina Easton reported back in October, some members of Congress were questioning the background of Huawei President Ren Zhengfei. In January, the panel extended its review of the deal, which meant it was no surprise when 3Com said Wednesday that it was “unable to reach a mitigation agreement with CFIUS.” Now, CEO Edgar Masri says, “While we work closely with Bain Capital Partners and Huawei to construct alternatives that would address CFIUS’ concerns, we will continue to execute our strategy to build a global networking leader.” Obviously, given 3Com’s recent stock price of $3 a share, that strategy is hardly a surefire winner.

The New Year is off to a rocky start for 3Com (COMS). The struggling maker of networking gear is trying to sell itself to a group including a big Chinese customer, but now the $2.2 billion deal is coming under fire in Washington. The Financial Times reports that a government security panel is set to extend by 45 days its investigation of 3Com’s planned buyout by Bain Capital and China’s Huawei.

The federal Committee on Foreign Investment in the U.S. could propose that Bain divest itself of 3Com’s TippingPoint unit, which provides computer security to the Defense Department, or cut back the participation of Huawei, the FT reports. The deal has no shortage of foes on Capitol Hill, Fortune’s Nina Easton reported back in October, with some in Congress questioning the background of Huawei President Ren Zhengfei.

It’s not clear what will come of the Cfius review, obviously. Bain says it expects the deal to go through. “As stated previously,” Bain says in an emailed statement, “we believe CFIUS will conclude that the company will remain firmly in the control of an American firm, has only a small minority foreign shareholder, and that the deal presents no risks to national security.”

But if opponents succeed in blocking the Huawei-Bain deal, who will want any part of 3Com? The networking industry also-ran recently posted a $36 million second-quarter loss as sales fell 5 percent from a year ago. Moreover, its one profitable business is a switchmaker called H3C - which started out as a joint venture with Huawei and still counts on the Chinese company as a big buyer. With U.S. banks desperately seeking capital from overseas, risking a standoff over a property as weak as 3Com would be a mistake.