The Man Who Would Save the Economy

Richard Field is the founder of the financial consulting firm TYI, LLC. (TYI stands for Trust Your Input.) A short, cerebral man of 50, he has a mind for finance that even friends in the industry find intimidating. After graduating from Yale, he earned an MBA from Northwestern. He worked at the Federal Reserve, worked at a holding company in Minneapolis, and has worked for the past 20 years on his own, as a portfolio strategist, planner, and trader, the last 10 from his home in Needham. His diverse employment and his curiosity to learn more—to routinely call up, say, bond traders or bankruptcy lawyers when he doesn't understand something—provides him the mental dexterity to weave disparate ideas into a coherent and, most often, original whole.

Field has a nasal voice, and it tends to screech when he is particularly excited about one of his ideas. And he was never more excited than on the morning of September 26, 2007. He was in his gym clothes as he read that day's Wall Street Journal, still sweating from his workout on the elliptical machine. The news focused, just as it had for the last three months (just as it does today), on the ever spreading credit crisis. The problem's trigger was something Field understood well: structured finance, an investment vehicle that financial institutions use to buy bonds that are composed of, in this case, mortgage loans from a bank. Too many of those mortgages, it was then already painfully clear, had been subprime packages extended to people who probably shouldn't have qualified for a mortgage in the first place. Wall Street wizards had thought they could lessen the risk for banks carrying those loans by slicing them up, shifting them into various bonds, and selling them to third parties. But Wall Street wizards were wrong. With homeowners defaulting on their subprime mortgages, the bonds were suddenly, basically, worthless.

Field had suspected for years that this might happen. Structured finance, he knew, has one glaring flaw: It offers little transparency. The home loans bundled into all those bonds? Wall Street had opted not to monitor the value and status of the mortgages themselves—to say that this mortgage is current, but that one delinquent; this one here is a 30-year fixed-interest, but that one there has a teaser rate that's about to expire and balloon into something the borrower can't afford. That information is crucial, Field says: Without it, purchasers of mortgage-backed bonds don't really know what they're getting. It's like buying a house without visiting it, without seeing pictures of it or reviewing its floor plan, trusting only what the seller says is the right price. In the structured-finance mess, everybody was buying properties this way, which is how it was possible for marquee firms to not only lose billions on bum transactions, but also in many cases to underestimate their total losses by billions more.

What made the Wall Street Journal article so exciting for Field, as he sat in his damp gym clothes last September 26, was that the right people were finally acknowledging this flaw. Moody's Investors Service and Standard & Poor's are Wall Street's leading credit-rating firms. They look at the assets that compose a bond and, from that, the likelihood it will default. This is supposed to tell a prospective investor how safe a bet the bond is—yet many of the mortgage-backed bonds that imploded in 2007 had at one time held the credit agencies' highest rating: triple-A. How could the credit agencies have been so off? Because, as the Journal reported, they didn't have the information needed to properly assess the bonds, either.

Beneath the online version of the article was a link to the full text of a "special report” Moody's had published the day before. Field had to read parts of the report five times. It confirmed everything he'd long surmised. Moody's was saying it could not decipher the actual performance of the individual loans that made up all these securities. There were too many of them, and no one in structured finance—by some estimates a $20 trillion industry—was tracking them. A $20 trillion industry, guessing at the value of each security it traded.

Field leaned back from his computer. He thought to himself, And here I am sitting with the golden key.