The last time the stock market panicked like this, it was 1907 and legendary banker J.P. Morgan had to step in to save the day.

Still, the century-old Bankers' Panic - caused by a credit crunch reminiscent of the one federal regulators are currently trying to avoid - left the New York Stock Exchange stocks worth 50 cents on the dollar.

Heading into today's market session, after another sell-off of 128 points on Wall Street Friday, the stock exchange's Dow Jones Industrial Average was off more than 40 percent from highs recorded earlier in the year.

”The stage we're at now is just pure panic,” said Tom McGuigan, principal in the Burns Advisory Group of Old Lyme. “This is a time for the history books. I tell my kids this is something you're going to read about.”

Stock swings are common, economic downturns periodic and market crashes occasional. But stock-market panics - defined as a relatively short period of precipitously falling prices in a broad range of markets - are much more rare.

”People are nervous - and justifiably so,” said Josh Lyons, principal in Lyons Asset Management of Stonington. “They really don't know how to react. They call me up and say 'What do I do?', 'Are the banks safe?', 'Should I pull all my money out of the market and put it under my mattress?'”

”We're clearly unhinged from reality,” said Bill Middleton, an investment adviser at Sound Portfolio Advisors in Mystic. “The fundamentals have been thrown out the window, and we're operating purely on emotion.”

For financial analysts, the periods in recent memory that come closest to the current panic are the stock market crashes of 1974 and 1987.

In September 1974, McGuigan pointed out, the stock market had tanked 46 percent when Time magazine asked whether the country was in the middle of a depression.

On Oct. 3 of that year, the Standard & Poor's average reached a new low, but four years later the index had increased 190 percent.

The market crash of Oct. 19, 1987, never reached the depths of other major downturns and sometimes is called a “black swan” event because its effect was short lived. In fact, though the crash was the biggest one-day loss in history using percentage terms, the market from the beginning of the year till the end actually increased.

On the other hand, the dotcom crash of 2000 to 2002, which affected technology and Internet-related companies, has had a much longer effect. By 2002, the S&P average was down 49 percent from its highs in early 2000, and now, eight years later, the Nasdaq stock average still hasn't recovered from price drops since the dotcom bubble burst.

”Everyone says today's circumstances are unique,” McGuigan said. “But the market has responded in the same way.”

As for the possibility that the United States is headed toward a depression, most financial analysts scoff at the notion.

McGuigan noted that the depression largely was caused by government missteps, including the decision to tighten credit, raise taxes and increase interest rates. As a result, market liquidity dried up.

By comparison, the government today is doing everything it can to ease credit, lower interest, increase liquidity and keep taxes reasonable.

”We have an incredibly flexible economic and financial system here,” said Middleton of Sound Portfolio Advisors. “I've heard some people say we're the next Japan (a country that has seen an extended economic slump), but we have done more in the last two weeks than Japan has done in the last 15 years.”

Financial advisers like Middleton don't like to predict exactly when the worst of the stock market woes will end, but they are confident the panic will end, followed by a slow recovery, perhaps starting as early as the next few weeks.

”We've basically priced in Armageddon,” Middleton said.

But McGuigan pointed out that encouraging signs already are on display. A recent auction of Treasury securities, for instance, didn't attract enough buyers, so the government had to raise the interest rate to complete the sale. This shows buyers won't flee to the safety of Treasurys unless they feel like they are making some return on their money, analysts said.

In fact, said McGuigan, the average dividend on an S&P stock is approaching 3 percent, not far from the yield of a 10-year Treasury note.

Another encouraging sign is all the money sitting on the sidelines waiting for a bottom. Once the market steadies, analysts said, a lot of money could be quickly put into play.

Meanwhile, financial advisers have been spending a lot of time holding investors' hands, trying to assure them that, though this downturn was worse than any of them expected, the end of life as we know it is not near.

Still, many people are clearly making their own decisions about investments, through tens of thousands of individual 401(k) accounts. And their panicky selling, Middleton said, likely has put off for a generation any more talk of giving individuals the right to control their own private Social Security-type accounts.

”I'm very concerned for clients with what they have to put up with and live through,” said McGuigan, who has been holding a series of Town Hall-type meetings to allay investors' fears.

”There's been a lot of hype with the media,” said Lyons. “In a lot of cases, I think they're searching out contrarians with a sky-is-falling point of view.”

Lyons' best advice is to enjoy watching the Red Sox play Tampa Bay in the American League Division Series and put off any big decisions about selling stocks until after the baseball World Series.

”The panic will end,” said Middleton. “They always do.”

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