Lehman in Free Fall as Default Fears Mount

Lehman also is looking at several options to avert the kind of loss of investor and lender confidence that caused the failure of Bear Stearns. Among those is an equity investment, a sale or spinoff of its $40 billion in troubled real estate assets and a sale of its investment management business.

Though Bove doesn't believe Lehman will go bankrupt, he believes if it did, it would embolden short sellers, causing them to take down much of the financial system one company at a time.

"If it can't be stopped, we'll have a good old-fashioned depression," he warns.

Lehman's shares have been hardest hit among the four large U.S. brokerage houses since the near-failure of Bear Stearns. Like Bear, Lehman's fortunes are strongly connected to the real estate and fixed income markets, which has been at the center of the current economic crisis.

Lehman Brothers has shaken up top management several times in recent weeks, including over the weekend, when it announced leadership changes in its fixed income and international operations.