You clearly know way more about this than I do
Probably less than you think, but I will continue to pretend not to have ten wikipedia tabs open.
but since I want to keep you talking, while the initial impetus may not be emergent what happens when the shock filters down to the rank and file? When consumers tighten spending and pull out of banks that can really put a damp on interbank lending and revenue. Is that less of a problem than I think it is?
That happened, but debt is more responsible for the crisis than consumer spending. What usually happens in a financial crisis is that economic agents purchase large amounts of assets (land, dot com stocks, etc) on credit that suddenly become illiquid (impossible to sell without significant loss in value). In the housing bubble for instance it eventually became impossible for the price of housing to continue to rise when the people playing the housing game ran out of available credit and were unable to continue, resulting in a collapse of the demand that was holding up prices. Because investors have sunk their wealth into now-worthless assets they are unable to pay off their debts, making banks unable to continue lending as they had before. So it isn't a sudden fall in animal spirits so much as inability to repay debts that bursts the bubble. It's debatable how much animal spirits have to do with inflating bubbles in the first place.
Consumer spending can help the economy
recover when the financial system is dislocated and firms must rely on profits rather than borrowing to expand or sustain production. But consumer spending is not going to
cause a crisis when it is too low. Countries like India maintain a high and growing savings rate because savings get lent out to firms. What happens in a financial crisis is that any savings become inaccessible to people who might invest them productively due to the dysfunctional financial system. Consumers withdrawing money from deposit accounts and not spending it doesn't help, though, as it hinders banks from returning to profitability and lending again.
The credit cycle explains this particular type of economic crisis quite well.
Most of the econ (and associated behavioral econ) I know is micro, it's an open question whether a lot of glaring psychological biases on the micro level filter up to the macro.
What do you mean by psychological biases? A lot of the market failures that might be attributed to instinctive judgements could also be attributed to imperfect information flows, game theory and perverse incentives.
