There are 12 regional Federal Reserve Banks. Each has a nine-member board of directors, composed of three commercial bankers (Class A, in Fed jargon), three people from nonbanking sectors of the economy (Class B), and three captains of industry from the region (Class C). Cain was Class C. In 1992, he joined the board of directors at the Kansas City branch of the Federal Reserve. In 1994, he was chosen to chair the board.
What does the board of directors actually do? Every month that Cain was there, board members would meet, talk through the economic developments and data in their areas, and offer some advice. Fed economists would listen. The research would be taken up to Kansas City Fed President Tom Hoenig, who could use it however he deigned to use it. “They’re a source of economic information for the bank,” explains Bill Medley, public information director for the Kansas City Fed. What’s their single biggest contribution? They recommend the discount rate, or what the Fed charges for loans. “But that,” says Medley, “has to be approved by the board of governors.”
That means that Cain’s role was chiefly as a charismatic guy who ran meetings well and corralled good advice. He was not an economist. In This Is Herman Cain!, the candidate recalls the Fed job as a Frank Capra-esque affair; a lunch with the branch manager turned into a pitch for an unexpected job.
“I thought: Wow, the Federal Reserve wants me to serve on one of its boards!” writes Cain. “That was something I had never really thought about, but it seemed pretty prestigious.” It was a learning experience, too. “Looking back on my time at the Federal Reserve, it gave me the opportunity to be exposed to macroeconomics.”
Was Cain just some naïf in the ways of high-level Fed policy? Sure. That was the point.
