This emphasis on "loss of confidence" is suspicious. I myself emphasize bad bets and excessive leverage, although I think the other factors did play a role. I also keep in mind that every businessman who has ever failed has blamed his failure on loss of confidence. Show me a busted oil wildcatter who doesn't think that the banks cut him off just before he was about to strike it rich. Show me a start-up founder who burned through his stake who doesn't think that his investors lost their nerve in spite of all the progress he was making.
They all think they failed because investors lost confidence. Bankers are no different. The audit that I would like to see is one that examines how the Fed determined that the financial crisis should have been treated as consisting largely of an extraordinary loss of confidence, rather than consisting of mostly bad bets with excessive leverage.
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