In September, 1988, Cain became mortgaged to Citibank for everything he owned. In December, 1988, The Federal Reserve Bank in Kansas City appointed Cain to be a director and to set monetary policy for banks, including the bank that his entire net worth was mortgaged to. How unethical is that? Is it legal?
According to the Federal Reserve, “The Federal Reserve implements monetary policy through its control over the federal funds rate—the rate at which depository institutions trade balances at the Federal Reserve .”
Herman Cain was appointed to the Kansas City Board of the Federal Reserve on December 29, 1988. This is the announcement of his appointment from the Omaha World Herald :
Herman Cain , president and chief executive officer of Godfather’s Pizza Inc. of Omaha, has been named a director of the Omaha branch of the Federal Reserve Bank of Kansas City.
He succeeds Janice D. Stoney, president of the consumer division of U S West Communications in Omaha.
A bank spokesman said Mrs. Stoney, who is completing her second term on the board, resigned to give more attention to her obligations with U S West.
The five directors of the Omaha branch are appointed for two – year terms. They usually are reappointed twice.
Cain did not have a background in economics or banking. He had a BA in mathematics and an MA in Computer Science. His only management experience was less than 3 years as manager of some 400 Burger Kings and less than 3 years as manager of around 600 Godfather’s Restaurants. This hardly qualified him to oversee policies for the banking industry.
Three Months before his appointment on September 20, 1988, Cain had been given a loan of approximately $30,000,000 dollars by Citibank to buy Godfather’s Pizzas. He was in debt to Citibank for his entire net worth.
Cain described how much he owed CitiBank in an interview in 1992:
When the buyout group was seeking financing, he said, he talked with bankers who wanted to know how much money the managers could raise toward the purchase.
“When we bought Godfather’s Pizza, we believed in the company, and we took a real big chance when we signed that mile – high stack of documents,” he said, “signing away our lives, all of our cars, my house. They even wanted the golf clubs listed as assets.
“When they asked for the golf clubs, I knew they were serious.”
Cain said he asked his banker why the loan went through even though the managers couldn’t raise the usual 20 percent to 25 percent of the purchase price.
“He said, ‘As long as we’ve got all of your money, we’re happy,’ ” Cain said. “Then I understood.”
Rule No. 2, the banker told Cain: “Before we lose a dollar, you will lose everything .”
When the Federal Reserve Bank of Kansas City appointed Herman Cain to its Board of Directors it must have known that Cain was in debt for every penny he owned, including his golf clubs, to Citibank. How could someone in debt to a bank for everything he owned be objective in setting monetary policy for banks, including the bank that had just given him a $30,000,000 loan?
Cain admits that the loan was unusual in that he did not put up the usual 20-25% needed for the loan. Is it possible that Citibank got something in exchange for the loan more important than this down payment? Is it possible that Citibank got someone on the Federal Board who was totally unqualified, but seriously in debt to them, and would advocate whatever policies they wished?
It is clear to me that the appointment of Cain and his acceptance was totally unethical. You can not give objective monetary policy advice in the best interests of all the people, if your direct financial interests will be drastically affected by the policies you set. My question for lawyers and others is “Was it illegal?” The appointment of an unqualified person (no economic or banking background) to a board to oversee banking policy immediately after that person has received a massive loan under unusual circumstances seems a criminal activity to me.
1. The Federal Reserve System Purposes and Functions, Chapter 3, “The Implementation of Monetary Policy,” pg. 27. http://www.federalreserve.gov/pf/pdf/pf_complete.pdf (viewed Oct. 23, 2011)
2/ Omaha World-Herald (NE) – Thursday, December 29, 1988, “Cain Named to Fed Board,” http://iw.newsbank.com/iw-search/we/InfoWeb?p_product=AWNB&p_theme=aggregated5&p_action=doc&p_docid=12E0AEA31C6D9A68&p_docnum=9&p_queryname=7 (viewed Oct 23, 2011).
3. Omaha World-Herald (NE) – Friday, October 2, 1992. “Focus, Not Expansion, Is Key, Pizza Chain Boss Says” Author: Steve Jordon, World – Herald Business Editor
Philosopher Jay
Notes to Aphrodite 
All I can say is WOW. You are doing a most excellent job researching this guy. I just hope you printscreened the the Omaha World Herald news item. I think it would be worth it to show a screen capture so people can see you didn’t make it up. You know how there are so many ‘doubting Thomases’ out there who want ‘proof’.
Thank you for doing a job none of the others will do. Right off the top of my head I can name 10 so-called conservative blogs that are totally in the tank for Cain, and none of them would take any notice, so it’s the people that need to be informed.
I really admire your vetting capabilities. Thank you so very much. I didn’t trust Cain from the get-go and you’re proving my gut instinct correct.
Hi Caith,
Thanks, I appreciate your kind words.
I do keep a file/copy of every article I find on Mr. Cain.
I’m enjoying my research into him. Reading philosophers a great deal of the time, I read people who try to tell the truth, so it is refreshing and fascinating to me to read about someone who spins everything the way he does. The scary thing for me is that the reporters we rely on to tell us the truth have not even bothered to check the myths he tells about himself.
You’re doing excellent work. Between this and your research into Herman Cain’s “success” as CEO of Godfathers has been a breath of fresh air. I’m surprised none of this has been picked up by the mainstream media, or even other blog sites.
Back to the article, I’m not a lawyer, but I am an accountant. More specifically, I’m an auditor. So my job is to look at a company’s financial statements and express my opinion about whether they are accurate. This opinion is used by investors and lenders to lend credibility to the financial statements they rely on in making their decisions.
There are strict rules in accounting regarding independence. If it is found that I was not independent (according to a specific set of criteria established by the AICPA, the accounting group responsible for the CPA exam), then my CPA license could be permanently revoked and I could face additional sanctions.
Unfortunately, I doubt that there is a similar set of rigid rules for Federal Reserve bankers. As has been discussed ad nauseum, there is a revolving-door/good old boys network existing in the Fed between the large banks and positions in the Fed and Treasury Department. I’m not saying anything definitive, but I would imagine there are no laws against appointing a Fed chairman with a clear lack of independence.
However, I think the moral argument is much stronger than the legal argument. The fact that it wasn’t illegal doesn’t make it any less wrong. The fact that Herman Cain was appointed as chairman of a Federal Reserve Bank with such a clear lack of independence shows how corrupt our entire monetary system has become. And, for Herman Cain, it puts his already weak credentials in further doubt.
Thanks Nate,
This is helpful. If this is not illegal, then it is apparent that we need way more regulation of the banking industry.
I wish I could spend more time investigating this, but I have a few more interesting revelations that I’m working on about Mr. Cain coming up in the next few days.
Thanks for your hard work.
Thanks, Joe.
It has been a lot of hard work, but it has also been quite pleasurable as uncovering truths can be.
I’m still at the tip of the iceberg stage on Mr. Cain. Hopefully, I’ll have some time on Thursday to add some really interesting material in a new Blog on Cain’s “Burger King” years from Sept. 10 1983 to May 31, 1986. I hope to reveal the real reason Cain was able to get a job managing 12% of Pillsbury’s “Burger Kings” without a single day of management experience and never having taken a single course in business or management in college. I think a lot of people are going to be saying “Oh My God” when they find out who Cain’s real life Godfather was in this little matter.