Who pushed the panic button? And what happens next?

Combine one part nervous traders, one part Greek crisis and one part trader error. Stir in one part central bank complacency. Bring to boil. Panic.

That combination produced one of the wildest days ever in financial markets, with the Dow Jones Industrial Average, at one point, down almost 1,000 points while the euro sank to its lowest level in more than a year. There were substantial declines in emerging markets, whose economies had seemed to be booming, and in developed markets fearful of renewed recessions.

Even though a substantial part of the worst plunge appeared to be linked to a trader error -- one $40 stock fell for a time to one penny -- prices had fallen around the world even before such mistakes began to happen.

It appears that investors are again growing more hesitant to own assets like stocks and bonds, particularly since many now cost far more than they did only a few months ago. Another sharp retrenchment by investors, consumers and businesses could threaten the current global recovery by choking off financing and new orders for companies.

For much of the past 14 months, the prices of risky assets around the world have been rising rapidly. That recovery, from lows reached in March 2009 amid talk of a new Great Depression, both reflected and encouraged a revival in economic activity. Manufacturers in most countries this week reported rapidly growing order books.

Eyes on Europe

The most recent recession was made in the United States, and to a large extent it was unmade here as well. If it was the subprime mortgage market and other credit excesses that sent markets reeling, it was also a willingness of the U.S. government, including the Federal Reserve Board, to plow in money when fears were at their highest that helped to bring those markets and economic activity back.

For the past several months, worries have been alternately rising and receding that the next crisis would be made in Europe, where Greece has faced the possibility of default. Europe and the International Monetary Fund have announced plans for a bailout, but there have also been riots in Greece amid anger over the steep budget cuts being forced on the country.

On Thursday, Jean-Claude Trichet, the president of the European Central Bank, said that the bank's governing council had not discussed the possibility of buying government bonds. That was taken as a disappointment by some traders, who had hoped the central bank would follow the Fed's lead in spreading liquidity.

Instead, fears are growing that Europe will follow the pattern laid down by the U.S. government in 2007, when officials delayed taking the bold action that finally did stop the panic.

The height of panic on Thursday was reached shortly after lunchtime in the United States. First some currencies began to fall rapidly, with the euro suffering especially against the Japanese yen.

That could have been an indication that some large traders were unwinding positions. It has been popular to borrow yen at low interest rates and then use the money to speculate in higher yielding assets denominated in other currencies. Anyone unwinding such a trade would buy yen to repay the loan.

Appeared to be collapsing

Then, within a few minutes, the U.S. stock market appeared to be collapsing. Some of the decline was real, but another part of it was simply trading gone awry.

Temporary plunges in the price of Procter & Gamble and 3M cost the Dow about 300 points, and appeared to be the result of errors, not intentional sell orders. Similarly, Accenture, a large consulting firm, fell from more than $40 a share to one penny.