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Stutzer: Financial Crisis Avoidable

MICHAEL STUTZER, professor of finance at the University of Iowa, points out that Tuesday's events were a civil and emotional crisis, not a financial crisis. An emotional crisis, he said, can lead to a financial crisis only if mishandled by government authorities. "A financial crisis is what happened in Japan, where people learned that not only were all the stocks they held were overvalued but that their government had a hand in leading their banks to bankruptcy," he said. "Nothing like that is happening here. But what does have to happen now is that the Fed must act to prevent a 'contagion of fear' from spreading and leading people to withdraw money and stop buying things. That would lead to a recession and thus to a real financial emergency."


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