We were totally shocked, shocked to learn this morning that Lehman was selling about half of its investment management business. Who could have guessed that this would be what they would announce this morning?
Perhaps the most interesting analysis of Lehman's announcement this morning hinges on the question: is Lehman still too big or too connected to fail? With the sell-off of assets and unwinding of certain positions, Lehman may have pushed itself into the category of investment banks that would be allowed to collapse without a bailout from the government, according to Robert Teitelman at the Deal.
At a certain point, the Fed doesn't need to worry as much about a Lehman that is heading toward midtier status, particularly since the firm has been deleveraging anyway. From Lehman's perspective, this "right-sizing" will eventually make it expendable, from a regulatory perspective, though it's doubtful the central bank will put out a press release on that day. But when that point is reached, Lehman better have a way to support itself, because as soon as the markets realize the Fed may not step in, it could be all over faster than you can say Bear Stearns.