Endogenous risk refers to the risk from shocks that are generated and amplified within the system. It stands in contrast to exogenous risk, which refers to shocks that arrive from outside the system. Financial markets are subject to both types of risk. However, the greatest damage is done from risk of the endogenous kind. This is our central thesis. We will substantiate our claim by reference to three episodes — the stock market crash of 1987, the LTCM crisis of 1998, and the collapse of the dollar against the yen in October 1998.