Fannie and Freddie were too big to fail. Bear Stearns was too "interconnected" to fail. At the time of the Bear crisis Wall Street didn't know what would happen to the credit default swap market if one end of it (Bear Stearns) started to unravel. But there has been a default event when the government took over Fannie and Freddie and the credit swap market handled it. While the debt outstanding of those two entities was not trading at depressed levels, the market still handled it. The market will handle the demise of another financial institution. We can have no more government bailouts.
I don't think that Lehman will default, but it's way past time for all the plans that have been floated to be put into action. Lehman can't raise capital for itself, so they need to sell Neuberger and spin off the commercial real estate portfolio. A spin requires someone to put in capital and there has to be an investor at some price. Lone Star took some toxic waste from Merrill at $0.22 on the dollar. It was probably worth a lot more (or why buy it ?), but Merrill had no choice but to sell to put to rest the rumors of its troubles. Lehman has no choice and CEO Fuld needs to bite the bullet or the stock will continue to go lower.
Goldman and Morgan Stanley report earnings soon, and AIG will announce its reorganization on September 25. The market needs additional data points from these leading financial companies before it can have a hope of having anything more than a trading rally. Washington Mutual seems to be on the ropes and if failure is in the cards, better to get it over with.
There is an ocean of liquid capital available. Money market funds have something like $3.5 trillion, sovereign wealth funds and private equity pools have trillions more. But there has to be some sign of stability in write-offs before there can be any confidence for additional investment.