The sky’s not falling in, we’re not going to hell in a handcart and financial services will soon be growing again, says economist Ken Goldstein.

After events last weekend and the demise of Bear Stearns, it’s easy to feel negative about the state of the financial services industry and the US economy. But the doom and gloom’s been overdone.

Earlier this week we saw an awful lot of speculation about who was going to be the next Bear Stearns, with some suggesting the US brokerage houses were about to fall over like a set of dominos with Lehman at the lead.

The root of the problem has been fear – not fear of what’s actually happened, but fear of what might happen. And fear and panic can’t be sustained. Either what we fear might happen does happen and we go into panic, or the worst doesn’t happen and things get better.

As it turned out, Lehman lost money on writedowns, but not nearly as much as the experts suggested, and markets are now up again.

The fear that’s gripped the financial markets, and especially the credit markets, misses three key points:

1. Credit markets have seen worse conditions. What we are seeing now is not as bad as the tech wreck or the Asian flu, but credit markets never got this twisted before.

2. The state has a handle on the situation. The Fed, the administration and Congress have clearly shown a willingness to step in, and they are not out of ammunition yet. If necessary, there are other steps they can take – the Fed can increase the amount of money available and widen who can step up to the window. Congress and the administration can expand the stimulus package.

3. The underlying US economy isn’t that bad. The US economy is certainly weak, but there remains some fundamental strength. Housing is bad, but outside of housing this is not a disaster. There’s still strength in the Mountain and Pacific regions, and in some of the Southern regions. This is not an economy rolling down a bottomless pit.

To cite the kids' story – this is not the sky falling in on Henny Penny. It’s not good, but nor is it that bad. The worst of the fears are not founded. Relatively quickly, we will get back to more normal conditions in the credit market, the economy will regain some momentum, and we will be back into a period of expansion again.

Ken Goldstein is an economist at The Conference Board in New York.