Wouldn’t a sh*tty asset crisis by definition imply liquidity problems. Inability and unwillingness to loan result in the same exact consequence; that of less loans. Hence credit contraction is what the FED is fighting. Liquidity crisis is really just a proxy for insolvency crisis, which leads to loss of confidence as you mentioned. This then rolls up into credit contraction with is deflationary, which is where the real crisis comes full circle. If deflation takes hold, all those sh*tty assets levered to the hilt will REALLY become toxic, or completely worthless, choose your phase to suit.
