I feel like there is something missing here. What's stopping you from using a normal def? Aside from the definition itself not being usable inline, there is nothing lambda does that def doesn't. And if you really want a definition close to the calling site, just define it there and then put the name where you want to pass it.
At the end of the day though there's really nothing to prevent you from creating janky code. Heck I saw a wild hack a couple weeks ago that allows for the creation of arbitrary custom syntax with pure Python, so you could create a multi-line lambda if you really want to that badly. But the widely adopted conventions exist for a reason.
def outer(a):
def inner(b):
return a * b
return inner
Though slightly longer, for most developers, it's still more grokkable (and related stack traces better) than:
def outer(a):
return lambda b: a * b
A very large part of Python's design is to emphasize readability for the majority. I still remember how long it took me to wrap my head around this "lambda thing" that I'd see pop up ever so often, even after a couple years of using Python. I eventually got fed up and took some time to really get to understand it. This shouldn't have to be the case for everyone reading random code.
Python is a primarily OOP-based language with functional aspects. And the design decisions that went into it are what makes it so popular today. It's not Haskell or Lisp or any of the other many that the majority avoid due to language complexity. Don't try to make it into one.
Imperative programming only gets you so far.
Maybe this is a sign that people are using Python for grander things than it was designed for?