Friday, August 6, 2010

The Players Behind CDARS and the Lessons Learned

The CDARS product was created by Promontory Interfinancial Network, LLC. This group is far from naieve and mot assuredly understands the moral hazard that is created by this product, and they most assuredly understand this product flies in the face of the spirit of FDIC insurance and the reason why insurance caps were put on deposits. The board includes a former Fed vice-chairman, Alan Blinder, a former U.S. Comptroller of the Currency, Eugene Ludwig and Mark Jacobson, a former Chief of Staff at the Federal Deposit Insurance Corporation.

Below is a Promontory discussion of its Board and a management team. Of which Promontory writes that "they are leading banking experts from the most senior levels of policymaking and practice. Together, they bring a remarkable depth of experience and marketplace knowledge to Promontory and the solutions it develops for customers."
Eugene A. Ludwig - Chairman; Co-Founder

Eugene A. Ludwig is the Chairman of Promontory Interfinancial Network, and former U.S. Comptroller of the Currency.

He also is the founder and Chief Executive Officer of Promontory Group, a suite of companies offering products and services to assist banks and other financial businesses. He is CEO of Promontory Financial Group and Chairman of Promontory Asset Finance Company. Prior to co-founding Promontory, Mr. Ludwig served as Vice Chairman and Senior Control Officer of Bankers Trust Corporation/Deutsche Bank.

As head of the U.S. Office of the Comptroller of the Currency (OCC), Mr. Ludwig oversaw the federal agency responsible for supervising federally chartered commercial banks and federal branches and agencies of foreign banks. He spearheaded efforts to modernize the banking industry. Prior to joining the OCC, Mr. Ludwig was a Partner at the law firm of Covington & Burling. Mr. Ludwig earned a J.D. from Yale University, a Masters as a Keasbey Fellow from Oxford University, and graduated magna cum laude from Haverford College.

Dr. Alan S. Blinder is the Vice Chairman of Promontory Interfinancial Network. He is also the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University and Co-Director of Princeton’s Center for Economic Policy Studies.

Formerly, he was the Vice Chairman of the Board of Governors of the Federal Reserve System. Prior to that, Dr. Blinder served as a Member of President Clinton’s original Council of Economic Advisers. He was also an economic advisor to Al Gore and John Kerry.

Dr. Blinder is the author or co-author of 17 books, including the textbook, Economics: Principles and Policy (with William J. Baumol), now in its 11th edition. He has also written scores of scholarly articles on such topics as fiscal policy, monetary policy, and the distribution of income. He is also a columnist for The New York Times Sunday business section, and appears frequently on PBS, CNBC, CNN, Bloomberg TV, and elsewhere.

Dr. Blinder earned a Ph.D. from the Massachusetts Institute of Technology and an A.B. from Princeton University, both in Economics.

Mark P. Jacobsen is a co-founder of Promontory Interfinancial Network and serves as its President and CEO.

Prior to co-founding Promontory Interfinancial Network in mid-2002, Mr. Jacobsen was a partner in the financial services consulting firm of Promontory Financial Group. Before then, he was Chief of Staff at the Federal Deposit Insurance Corporation (FDIC) from 1999 through 2000. Earlier, Mr. Jacobsen worked as a Managing Director at Bankers Trust Company (later Deutsche Bank), where he focused on risk management issues.

From 1994 until 1998, Mr. Jacobsen served at the Office of the Comptroller of the Currency (OCC), as Special Assistant to the Chief Counsel, Senior Advisor to the Comptroller and finally as Chief of Staff.

He began his career at the law firm of Covington & Burling in Washington, DC. Mr. Jacobsen holds a J.D. from Harvard Law School and a B.S. in physics from Wheaton College in Illinois.

Alfred H. Moses is Vice Chairman and co-founder of Promontory Interfinancial Network, and a Senior Partner of Promontory Financial Group. Mr. Moses also is a Partner and Senior Counsel in the Washington, D.C., law firm of Covington & Burling. His public service included terms as Special Advisor and Special Counsel to President Jimmy Carter from 1980 to 1981; the American Ambassador to Romania from 1994 to 1997; and the Special Presidential Envoy for the Cyprus conflict until 2001.

Mr. Moses received his law degree from Georgetown University, where he was editor of the Georgetown Law Review, and his bachelor's degree from Dartmouth College.

Art Certosimo is the Vice Chairman of Promontory Interfinancial Network. He is also the Executive Committee Member, and the Senior Executive Vice President and Chief Executive Officer, Broker-Dealer Services and Alternative Investment Services at the Bank of New York Mellon. He oversees all client services, product management, sales, operations and technology activities worldwide.

Before joining The Bank of New York Mellon in 1998, Mr. Certosimo was a principal of Morgan Stanley Asset Management (MSAM), where he managed customer information services worldwide. Earlier, he was a Vice President at the Chase Manhattan Bank's Global Investor Services group, where he established and managed the global customer service organization.

Mr. Certosimo also serves as a member of the Board of Directors of Depository Trust & Clearing Corporation and Brooklyn Bureau of Community Service, and as a member of the Finance Advisory Board of Rutgers Business School.

Mr. Certosimo holds a B.S. in Business Administration from Rutgers College at Rutgers University, and an M.B.A. from Fairleigh Dickinson University.

James M. Culberson, Jr. is Chairman Emeritus of the First National Bank and Trust Company, Asheboro, NC, and a former President of the American Bankers Association and the North Carolina Bankers Association.

He is presently Chairman of the North Carolina Enterprise Corporation. Mr. Culberson served as President, Chairman and Chief Executive Officer of First National Bank for more than 20 years, and was a Director of the Federal Reserve Bank of Richmond. Prior to First National, he was Senior Vice President at Wachovia Bank & Trust Company. Mr. Culberson holds a B.A. from Dartmouth College.

Izzy Dawood is the head of Global Corporate Development of The Bank of New York Mellon. Mr. Dawood joined the company in November 2006.

In 1994, Mr. Dawood joined Wachovia Corporation as the Managing Director, Structured Treasury Activities, in Charlotte, NC. Earlier, he held various positions in corporate finance, and later played a key role in the Wachovia/First Union merger.

Mr. Dawood holds an M.B.A. from the Wharton School of Business and a B.S. in Finance from St. John’s University. He also holds a CFA designation.

Kenneth M. Duberstein is Chairman and Chief Executive Officer of The Duberstein Group, an independent strategic planning and consulting company in Washington, DC. Prior to forming his own company, he served as Chief of Staff to President Reagan.

During the Reagan Administration, Mr. Duberstein also held the position of White House Deputy Assistant to the President for Legislative Affairs. Previously, he was Vice President and Director of Business-Government Relations at the Committee for Economic Development.

Mr. Duberstein also was Vice President of Timmons & Company Inc, a government relations firm. His earlier government service included serving as Deputy Under Secretary of Labor during the Ford Administration and as Director of Congressional and Intergovernmental Affairs at the U.S. General Services Administration. Mr. Duberstein holds an A.B. from Franklin and Marshall College and an M.A. from American University.

Edward W. (Mike) Kelley, Jr., recently retired as a board member for the Board of Governors of the Federal Reserve System, where he was Chairman of the Payment System Policy Advisory Committee.

At the Federal Reserve, he also served as Chairman of the Strategic Planning Coordination Group, as well as the committees of Bank Affairs, Supervision and Regulation, and International Finance. Mr. Kelley has been a founding Director of three banks in the Houston area: Southern National Bank, Westwood Commerce Bank, and West Belt National Bank.

Before joining the Federal Reserve, Mr. Kelley served as Chairman of the Board for Investment Advisors Incorporated and President and Chief Executive Officer of Kelley Industries Inc., both in Houston. Mr. Kelley holds an M.B.A. from Harvard Business School and a B.A. in history from Rice University.

Frank N. Newman is Chairman and Chief Executive Officer of Shenzhen Development Bank, China. He is also Chairman Emeritus of Bankers Trust Corporation, following his tenure as Chairman and Chief Executive Officer of Bankers Trust Corporation and its principal banking subsidiary, Bankers Trust Company.

Before joining Bankers Trust, Mr. Newman was Deputy Secretary of the U.S. Treasury Department and its Chief Operating Officer. Mr. Newman oversaw domestic and international economic policy matters, as well as financial services industry issues.

Previously, Mr. Newman spent six years with BankAmerica Corporation, where he was Chief Financial Officer and Vice Chairman of the Board of Directors. Prior to joining BankAmerica, Mr. Newman was Executive Vice President and Chief Financial Officer at Wells Fargo Bank in San Francisco. Mr. Newman holds a B.A. in economics from Harvard University.

Donald G. Ogilvie, formerly President and CEO of the American Banker Association (ABA), managed the association from 1985 to 2005. He is currently Chairman of American Bankers Association International. He is also the Director of TransUnion Corporation in Chicago, and MacDermid, Inc., in Waterbury, CT.

Mr. Ogilvie serves as a consultant to the Board of the International Monetary Conference, which includes the heads of approximately 80 of the largest international banks in the world. He holds a similar role with the International Financial Conference, a forum for the CEOs of the larger U.S. regional banks and non-U.S. financial services companies.

Mr. Ogilvie was Vice President of the Celanese Corporation and served as Founding Associate Dean at Yale University’s School of Organization and Management, where he currently teaches. A native of New York City, Mr. Ogilvie holds a B.A. in economics from Yale University and a M.B.A. from Stanford University’s School of Business.

Senator Warren B. Rudman became a Partner in the international law firm of Paul, Weiss, Rifkind, Wharton & Garrison after serving two terms as a U.S. senator from New Hampshire.

During his 12 years in the Senate, Sen. Rudman served as Chairman of the Ethics Committee and as a member of the committees on Appropriations, Intelligence, Governmental Affairs and Permanent Subcommittee on Investigations. He co-authored the Gramm-Rudman-Hollings Deficit Reduction Act. In January 2001, President Clinton awarded him the Presidential Citizens Medal, recognizing his years of devoted public service. He is currently a member of the blue ribbon commission of The Conference Board called The Commission on Public Trust and Private Enterprise.

Sen. Rudman began his career practicing law in his hometown of Nashua, New Hampshire. He was later appointed Attorney General of New Hampshire and then elected President of the National Association of Attorneys General. After completing his public service, Sen. Rudman joined the Manchester, N.H.-based law firm of Sheehan, Phinney, Bass and Green. Sen. Rudman received a B.S. from Syracuse University and an LL.B. from Boston College Law School.

Jeffrey B. Schreier is a financial company strategic and operating executive and advisor. Formerly Managing Director of The Bank of New York Mellon, Mr. Schreier led major corporate initiatives, including the planning and execution of the merger between The Bank of New York Company, Inc. and Mellon Financial Corporation, and the restructuring and consolidation of the banks, trust companies, and other operating subsidiaries comprising the new financial holding company. Before the merger, he was responsible for special projects, reporting to BNY’s Chairman and CEO, and served as Head of Mergers and Acquisitions, co-head of Corporate Development, and Head of Corporate Finance. Previously, in the Legal Division, Mr. Schreier served as Head of Litigation, Corporate and Real Estate Restructuring, Bankruptcy, Banking Operations and HR.

Before joining the Bank, Mr. Schreier was in private practice with Proskauer Rose. He holds a J.D. from Washington University in St. Louis, an M.A. from the University of Michigan, and a B.A. from Union College in Schenectady, New York.

J. Michael Shepherd is President and Chief Executive Officer for Bank of the West. He joined the bank in 2004 as Executive Vice President, General Counsel and Secretary for the bank and its holding company BancWest Corporation. He is also a member of the bank's Board of Directors, its Office of the Chairman, its Executive Management Committee and is a Director of BancWest Corporation.

Before joining Bank of the West and BancWest Corporation, Shepherd served in similar positions with The Bank of New York Mellon. and Shawmut National Corporation. He was a Partner in the law firm of Brobeck Phleger & Harrison LLP and special counsel in the law firm of Sullivan & Cromwell.

Mr. Shepherd also served as Senior Deputy Comptroller at the Office of the Comptroller of the Currency, and associate counsel to the President of the United States and Deputy Assistant Attorney General. Mr. Shepherd is a graduate of Stanford University and the University of Michigan Law School.

O. Jay Tomson serves as Chairman of the Board of First Citizens National Bank in Mason City, Iowa, with branches in 10 North Iowa communities. Mr. Tomson is a past President of the Independent Community Bankers of America, and presently serves on the ICBA Tax Committee. He is also a former President of the Iowa Independent Bankers Association.

While at First Citizens, Mr. Tomson also served as a Director of the Federal Reserve Bank of Chicago. Previously, he was an Executive Vice President at Marquette National Bank in Minneapolis, Minnesota, and Vice President of Operations at Bankers Trust Company in Des Moines, Iowa. Earlier in his career, Mr. Tomson served as a Bank Examiner, with the U.S. Comptroller of the Currency and the Federal Reserve Bank of Chicago, principally in the state of Iowa.

Mr. Tomson holds graduate degrees from the Stonier Graduate School of Banking and Iowa Agricultural Credit School, and a B.A. in Economics from St. Olaf College in Northfield, Minnesota.

Frank G. Zarb is Chairman of Frank Zarb Associates and Senior Advisor to The Nasdaq Stock Market, Inc., and the National Association of Securities Dealers, Inc. (NASD), which is now the Financial Industry Regulatory Authority (FINRA).

Previously, Mr. Zarb served as Chairman and Chief Executive Officer of Nasdaq and NASD. Before that, he was Chairman, Chief Executive Officer and President of Alexander & Alexander Services, Inc., a global organization of professional advisors providing risk management, insurance brokerage, and human resource management consulting services.

Mr. Zarb earlier was Vice Chairman and Group Chief Executive of The Travelers, Inc., and Chairman and Chief Executive Officer of Smith Barney, a Travelers subsidiary. Mr. Zarb holds M.B.A. and B.S. degrees
Nassim Nicholas Taleb said it best when writing generically about this group. Take a look again who these people are, a former Fed member,a  former FDIC man, etc. and then read Taleb's comment:
Tell me if you understand the problem in its full simplicity: former regulators and public officials who were employed by the citizens to represent their best interests can use the expertise and contacts acquired on the job to benefit from glitches in the system upon joining private employment -- law firms, etc.

Think about it a bit further: the more complex the regulation, the more bureaucratic the network, the more a regulator who knows the loops and glitches would benefit from it later, as his regulator edge would be a convex function of his differential knowledge. This is a franchise..., the more complicated the regulation, the more prone to arbitrages by insiders. So 2,300 pages of regulation will be a gold mine for former regulators. The incentive of a regulator is to have complex regulation.

...the difference between letter and spirit of regulation is harder to detect in a complex system. The point is technical, but complex environments with nonlinearities are easier to game than linear ones with a small number of variables. The same applies to the gap between legal and ethical...In African countries, government officials get explicit bribes. In the United States they have the implicit, never mentioned, promise to go work for a bank at a later date with a sinecure offering, say $5 million a year, if they are seen favorably by the industry
Nothing these people have done is likely to land them in jail. As Blinder told Taleb, it's been passed on by the lawyers. They know how to talk code well, so everything will technically be legal. But it is morally bankrupt activity. It makes the banking sector weaker and they all know this. It is against the spirit of FDIC regulation and cap limits, they know this also.

There shouldn't even be an FDIC. It's designed for the little guy they will tell us, as they design backdoor ways to protect the super-wealthy, and put a pretty penny in their own pocket.

There are some big object lessons here for those who are trying to understand liberty versus power. If you create power centers, the morally bankrupt will seek to manipulate and capture the power centers for their own advantge. They quite frankly don't give a damn about the country or moral principles.

The only solution is less regulation, so there are no power centers to capture. Options and alternatives are always superior to creating a new regulatory body to correct the corruption of passed regulatoty bodies.

The next lesson to be learned is to understand how the brains of these men are captured here in D.C. Somehow, they all sleep well at night. Some know they are corrupt and don't give a damn. Most though just block their minds to the evil they do.

These guys are all real smart, but they are so power hungry, greedy or just simply need to be "in" that they will go into a brain freeze and sell their souls, when they very easily could earn an honest buck in the real unconnected private sector

It is a sad story, but it happens every day here in D.C. And what is real sad is that there are so many of the morally bankrupt here that they soon will be eating off the remains of the carcass of America. Will America somehow stop these bastards, or will the nation be thrown to the dogs as these bastards muscle each other for what is left? That is the big question.


  1. Your viewpoint is a sign of the times. Real changes follow capitulation. Until then, it's the old system at work. Unfortunately for us, that infers things get much worse before they get better.

  2. Once again you're totally missing the point. CDARs are not in any way contrary to the spirit of FDIC insurance; they are an extension of the policy. The entire purpose of FDIC insurance is to subsidize risk taking on the part of banks by bailing them out at taxpayer expense. CDARs are simply a way for depositors to (rationally) protect themselves against risky bank practices under the existing institution of fractional reserve banking. The only problem with CDARs is that they further expand the extent to which deposits are covered and thus the total size of the subsidy to banks. The far more serious problem is the existence of FDIC insurance in the first place. Attacking CDARs in particular is just a left wing red herring, to attack the rich (large deposit holders), without questioning the real underlying problem created by the liberals' saint, FDR.

  3. @Jim

    Well said.

    CDARs is just making efficient a difficult process of protecting funds that would otherwise be in the system anyway by painfully opening individual accounts across scores of banks. CDARs' one-stop approach is a model of efficiency, not risk.