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Bernanke Edges Closer To the 'Real' Root Cause Of the Crisis

Lost of confidence is not the cause for the destruction of trllions of losses in wealth directly and indirectly. Lost of confidence is the result of the steep decline in stock prices and the increasing number of banks/investment banks going broke.

The true cause is more simple and basic. It has to do with the desire of CEO of public companies to "create" profits in order to push up the price of their stocks thereby giving them a winfall from their stock options.
The incentive to have a home run in their compensation made them dream up and create products which are risky but sellable. This in itself is not a hugh problem as the max. loss is 100% of capital. But when they leverage the capital 50:1, their loss suddenly becomes -5000% of capital if the whole investment is written off to zero.

Of course if their risky investment even goes up just 10%, the company will book profit of 500% RO capital based on the 50:1 leverage. The stock will shoot up giving the CEOs and management billions of dollars gain through exercising their in the money options.

The management are more than willing to do this as there is little risk but hugh rewards for them. The shareholders/debt holders finance their schemes. If it goes sour, shareholders/debt holders lose their shirt, while management still get to keep their salaries.

That my friends is why we are in this mess.