Well, that would certainly be true in any town or city other than Freehold.
But Freehold is pretty much the only city on the planet where you can see demons walking down the street. A number of wizards have demons in their regular service who aren’t in the palace. For example Vaselle often sends Estrebrius out on various errands around the city, not that different than a Roman slave. Of course he’s got a collar on, identifying him as bound and who he belongs to. Oh wait, you haven’t met them yet. Sorry.
So the freakout is more about the scale and number of the demons. And a lot of that blame will be upon the Council. I.e. the first assumption, since a huge percent came from the Council palace is that the council was using way too many demons to be safe.
As things come out, obviously people will start to freak, but the Council’s PR engine will be in overdrive.