Then came Katrina. The reaction to the storm has put a fine point on Americans’ risk disorientation. The single biggest issue in Florida’s 2006 governor’s race, for instance, was the price of insurance. The Republican, Charlie Crist, got himself elected on the strength of his promise to reduce Floridians’ home-insurance rates by creating a state-subsidized pool of $28 billion in catastrophe insurance coverage. “Florida took this notion of spreading this risk and turned it on its head,” says one former state insurance commissioner. “They said, ‘We’re going to take all this risk ourselves.’ ” The state sold its citizens catastrophe insurance at roughly one-sixth the market rates, thus encouraging them to live in riskier places than they would if they had to pay what the market charged (and in the bargain, the state subsidized the well-to-do who live near the beach at the expense of the less-well-to-do who don’t). But if all the models are correct, $28 billion might not cover even one serious storm. The disaster waiting to happen in Florida grows bigger by the day, but for a man running for governor of Florida, ignoring it is a political no-brainer. If he’s lucky — if no big storms hit in his term — he looks like the genius who saved Floridians billions in catastrophic-risk premiums. If he’s unlucky, he bankrupts Florida and all hell breaks loose, but he can shake down the federal government to cover some of the losses.

Louisiana’s politicians are usually quicker than most to seize upon shrewd politics that generate terrible social policy, but in this case they could not afford to. Louisiana cannot generate and preserve wealth without insurance, and it cannot obtain insurance except at the market price. But that price remains a mystery. Billions of dollars in insurance settlements — received by local businesses and homeowners as payouts on their pre-Katrina policies — bloat New Orleans banks and brokerage houses. The money isn’t moving because the people are paralyzed. It’s as if they have been forced to shoot craps without knowing the odds. Businesses are finding it harder than ever to buy insurance, and homeowners are getting letters from Allstate, State Farm and the others telling them that their long relationship must now come to an end. “I’ve been in the business 45 years,” says a New Orleans insurance broker named Happy Crusel, “and I’ve never seen anything remotely like this.” An entire city is now being reshaped by an invisible force: the price of catastrophic risk. But it’s the wrong price.

Insurance companies, John Seo says, are charging customers too much — or avoiding their customers altogether — instead of sharing their risk with others, like himself, who would be glad to take it. New Orleans, as a result, is slower than it otherwise would be to rebuild. “The insurance companies are basically running away from society,” he says. “What they need to do is take the risk and kick it up to us.” They need to spread it as widely as possible across the investment world and, in the process, minimize the cost of insuring potential losses from catastrophes.

But this, too, is happening. The people on Wall Street who specialize in cat bonds now view Katrina as the single most important thing that ever happened to their business: overnight it went from a tiny backwater to a $14 billion market, and it is now stretching and straining to grow. In March of this year, a single insurer, Allstate, announced its intention to sell $4 billion in catastrophe bonds. A $14 billion market is a trivial sum next to the half-trillion or so dollars that the insurance industry stands to lose from megacatastrophes and next to the additional trillions of dollars worth of property that has gone uninsured in the places most likely to be destroyed by nature, like California, because the insurance is so expensive. But there are all around John Seo signs of a shift in the culture of catastrophe. “It has all the features of providential action,” he says. “It’s like all the actions of man and nature serve to grow the cat-bond market.”

When Katrina struck and his Kamp Re bonds collapsed — from $100 to 0 — Seo was able to view his loss with detachment. The models had badly underestimated the risk, but it was in the nature of extreme risk that the prediction of it would sometimes be mistaken. “The important thing is that the money wasn’t lost in an unearned manner,” he says, by which he means that it wasn’t lost dishonestly or even unwisely or in what his community of investors would consider a professionally unacceptable manner. Investors will endure losses as long as they come in the context of a game they perceive as basically fair, which is why they don’t abandon the stock market after a crash. “That’s all I need to know,” Seo says. “That’s all my clients need to know.” Actually, he goes even further: “I would be embarrassed if we had a big event and our loss wasn’t commensurate with it. It would mean that we didn’t serve society. We failed society.”

Seo’s returns in 2005 were only slightly positive, compared with the roughly 10 to 12 percent he had been delivering, but the demand for his services boomed. He now controls $2 billion, or more than twice what he had before the most costly natural disaster in history. Big investors weren’t scared off by Katrina. Just the reverse. It has led many of them to turn to Seo and others like him to make money from catastrophe. And they probably will. But what interests Seo more is what might happen in the bargain, that the financial consequences of catastrophe will be turned into something they have never been: boringly normal.