This time, the danger isn’t financial engineering. It’s that our financial system has attached itself to the vulnerabilities of our physical world — power grids, water, land, supply chains — and created hazards that markets have no framework to analyze. Our models for detecting risk look at prices, volatility and correlations. They have no instruments for reading a grid failure, a drought or a severed supply chain. By the time warning signs show up in market data, the damage will already have been done.

I Predicted the 2008 Financial Crisis. What Is Coming May Be Worse.

By Richard Bookstaber

Mr. Bookstaber is the author of “A Demon of Our Own Design,” which in 2007 warned of the potential for a financial crisis.