Contagion in Three Forms Now Has Grip on Europe: Simon Johnson
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July 18 (Bloomberg) -- There are three types of contagionin a financial crisis, when the potential collapse of a firm,bank or country threatens to spiral out of control. The EuropeanUnion today has all three.
The first type is purely psychological -- the panic of herdbehavior. The second comes from thinking through the realeffects that a collapse would have, as the potential spilloversdawn on people. The third, and most devastating, emerges whensmart investors realize that their assumptions -- based on thepronouncements of policy makers -- are all wrong and need to betossed overboard.