[Senate Hearing 107-882]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-882

 
                     NOMINATIONS OF: JOANN JOHNSON
                     DEBORAH MATZ, ANTHONY S. LOWE
                CYNTHIA A. GLASSMAN, AND ROEL C. CAMPOS

=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON
                   BANKING, HOUSING, AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

                            NOMINATIONS OF:

             JOANN JOHNSON, OF IOWA, TO BE A MEMBER OF THE
                   CREDIT UNION ADMINISTRATION BOARD

                               __________

            DEBORAH MATZ, OF NEW YORK, TO BE A MEMBER OF THE
                   CREDIT UNION ADMINISTRATION BOARD

                               __________

       ANTHONY S. LOWE, OF WASHINGTON, TO BE ADMINISTRATOR OF THE
            FEDERAL INSURANCE AND MITIGATION ADMINISTRATION
                  FEDERAL EMERGENCY MANAGEMENT AGENCY

                               __________

         CYNTHIA A. GLASSMAN, OF VIRGINIA, TO BE MEMBER OF THE
                   SECURITIES AND EXCHANGE COMMISSION

                               __________

            ROEL C. CAMPOS, OF TEXAS, TO BE A MEMBER OF THE
                   SECURITIES AND EXCHANGE COMMISSION

                               __________

                   MARCH 14, MAY 8, AND JULY 23, 2002

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


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                            WASHINGTON : 2003
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

           Steven B. Harris, Staff Director and Chief Counsel

             Wayne A. Abernathy, Republican Staff Director

                        Dean Shahinian, Counsel

                          Sarah Kline, Counsel

           Tom Readmond, Republican Professional Staff Member

   Jospeh R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                  (ii)
                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 14, 2002

                                                                   Page

Opening statement of Chairman Sarbanes...........................     1

Opening statements, comments, or prepared statements of:
    Senator Gramm................................................     2
    Senator Johnson..............................................     2
        Prepared statement.......................................    14

                                WITNESS

Charles E. Grassley, a U.S. Senator from the State of Iowa.......     5
    Prepared statement...........................................    14

                                NOMINEES

JoAnn Johnson, of Iowa, to be a Member of the Credit Union 
  Administration Board...........................................     4
    Prepared statement...........................................    15
    Biographical sketch of nominee...............................    17
Deborah Matz, of New York, to be a Member of the Credit Union 
  Administration Board...........................................     6
    Prepared statement...........................................    25
    Biographical sketch of nominee...............................    26

              Additional Materials Supplied for the Record

Letter to Senator Paul S. Sarbanes from the National Association 
  of
  Federal Credit Unions, dated March 6, 2002.....................    35

                              ----------                              

                         WEDNESDAY, MAY 8, 2002

Opening comments of Chairman Sarbanes............................    37

                                WITNESS

Mike DeWine, a U.S. Senator from the State of Ohio...............    37
    Prepared statement...........................................    48

                                NOMINEE

Anthony S. Lowe, of Washington, to be Administrator of the 
  Federal
  Insurance and Mitigation Administration, Federal Emergency
  Management Agency..............................................    40
    Prepared statement...........................................    48
    Biographical sketch of nominee...............................    50
    Response to written questions of Senator Akaka...............    54

                              ----------                              

                         TUESDAY, JULY 23, 2002

Opening statement of Chairman Sarbanes...........................    57

Opening statement, comments, or prepared statements of:
    Senator Enzi.................................................    58
    Senator Akaka................................................    60
    Senator Allard...............................................    61
    Senator Dodd.................................................    61
    Senator Corzine..............................................    66
    Senator Gramm................................................    74

                                NOMINEES

Cynthia A. Glassman, of Virginia, to be a Member of the 
  Securities and Exchange Commission.............................    63
    Prepared statement...........................................    78
    Biographical sketch of nominee...............................    79
    Response to a written question of Senator Corzine............   117
Roel C. Campos, of Texas, to be a Member of the Securities and 
  Exchange Commission............................................    64
    Prepared statement...........................................   103
    Biographical sketch of nominee...............................   105
    Response to a written question of Senator Corzine............   117


                            NOMINATIONS OF:
                         JOANN JOHNSON, OF IOWA
                                  AND
                       DEBORAH MATZ, OF NEW YORK
                          TO BE MEMBERS OF THE
                         NATIONAL CREDIT UNION



                          ADMINISTRATION BOARD

                              ----------                              


                        THURSDAY, MARCH 14, 2002

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 3:20 p.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee), presiding.

         OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. The Committee will come to order.
    I am pleased to welcome before the Banking, Housing, and 
Urban Affairs Committee this afternoon the two nominees to be 
members of the board of the National Credit Union 
Administration, JoAnn Johnson of Iowa and Deborah Matz of New 
York.
    Both of these nominees received recess appointments to the 
Board on January 22, and therefore are currently serving as 
members of the board. The Committee today will consider their 
nominations for terms on the board. If confirmed, Ms. Johnson's 
term would expire on August 2, 2007 and Ms. Matz's term would 
expire on August 2, 2005.
    Ms. Johnson graduated from the University of Northern Iowa 
in 1971. She owned and ran a family farm from 1971 until 1995. 
From 1995 until she received her recess appointment to the 
NCUA, she was a member of the Iowa State Senate, where she 
served 4 years as Chair of the State Senate Ways and Means 
Committee, and most recently as Chair of the Commerce 
Committee.
    Ms. Matz received her undergraduate degree from Cornell in 
1971, a master's degree from George Washington in 1976. She was 
a Community Development Representative for the New York area 
office of HUD right out of college, and then she worked with 
Congressman Peter Peyser of New York, whom we knew, as his 
legislative assistant. She then worked as an Economist for the 
Joint Economic Committee of the Congress from 1977 to 1984, and 
again from 1987 until 1989. She then worked at the Department 
of Agriculture over the last 8 years in several senior 
executive positions, including Deputy Assistant Secretary for 
Administration. After leaving the Agriculture Department she 
worked as an Executive Officer with the Washington office of 
the Food and Agricultural Organization of the United Nations.
    Both of these nominees bring an independent background and 
perspective to the board of the National Credit Union 
Administration, and I expect to support their nominations. They 
also are in the somewhat unusual circumstance of having their 
nominations considered by the Senate for the first time after 
they have begun service in the positions for which they have 
been nominated. They are therefore in a position perhaps to 
share with the Committee their views on the positions for which 
they have been nominated based on a brief but nevertheless 
useful tenure on the board, and we look forward to their 
statements.
    With that, I yield to Senator Gramm.

                 COMMENTS OF SENATOR PHIL GRAMM

    Senator Gramm. Mr. Chairman, thank you very much. I will be 
very brief.
    We have two excellent nominees and I intend to support them 
both. I want to thank you for being willing to engage in public 
service. It is a very high calling, and it is vitally 
important.
    Also, I want to urge each of you as a member of this 
regulatory body to always remember that you are not there to 
represent the interests of credit unions. You are there to 
represent the interests of the working men and women of the 
United States of America. It is their interest that should 
always be put first, and I look forward to working with both of 
you in your capacity as confirmed members of the board.
    Thank you very much.
    Chairman Sarbanes. Thank you very much, Senator Gramm.
    Senator Johnson.

                STATEMENT OF SENATOR TIM JOHNSON

    Senator Johnson. Mr. Chairman, thank you very much for 
moving forward so quickly with the confirmation of Deborah Matz 
and JoAnn Johnson to the NCUA board. It is a special pleasure 
for me today to welcome in particular nominee Matz before the 
Committee. I have known Debbie and her husband Marshall for 
many years. I am confident that Debbie will make a superb NCUA 
board member. She is here today with her husband Marshall and 
son Peter. Daughter Hayley is away at college right now, but it 
is a wonderful family and I know that Deborah will do a 
wonderful job at NCUA.
    In fact, Mr. Chairman, I know that you know her abilities 
and reputation firsthand, because of her service as a Member of 
the Joint Economic Committee during your tenure as Chairman. In 
continuing her long and distinguished public service career, 
Debbie served as Deputy Assistant Secretary of Agriculture for 
Administration, filling a very important role of overseeing the 
administration of the Department of Agriculture's day-to-day 
operations.
    I would like to take just a moment to thank the nominees 
for their willingness to serve on the NCUA board. I know that 
there are more lucrative options, no doubt, in the private 
sector. But we are grateful to you for your commitment to 
public service.
    Mr. Chairman, credit unions and the financial services 
industry have changed dramatically since the founding of the 
NCUA in 1970. Today our 10,000 credit unions, with over $480 
billion in assets, serve more than 79 million people in the 
United States with a broad array of services from basic savings 
accounts to credit cards to even home mortgages. Yet at the 
same time the basic mission of credit unions remains the same, 
to serve their members. Credit unions enjoy a tremendously 
loyal customer base, and most credit unions work hard to create 
an environment where members feel comfortable doing business.
    Unfortunately, I have several commitments this afternoon 
that may prevent me from staying as long as I would like at 
this hearing. But there is an issue that I would like to ask 
the nominees to either address today or during the question and 
answer period, or filing a written submission to the Committee. 
With your permission Mr. Chairman, I would like to ask the 
question in my opening statement.
    Chairman Sarbanes. Sure.
    Senator Johnson. And then at the appropriate time the 
nominees can respond.
    Chairman Sarbanes. I will be happy to yield to you right at 
the outset.
    Senator Johnson. Let me just ask this question very 
quickly.
    Many State-chartered credit unions have expressed concern 
over the process by which the NCUA establishes its overhead 
transfer rate. As I understand it, the overhead transfer rate 
is the amount of money taken out of the share fund to pay for 
the NCUA's insurance-related activities.
    Historically, NCUA has estimated the transfer rate at 50 
percent. Recently, however, it raised the rate to 67 percent 
and then lowered it to 62 percent. NCUA's overall budget is 
funded partially by exam fees from Federally chartered credit 
unions and partially by the share fund. When the transfer rate 
is increased, two things happen. One, the share fund provides a 
larger proportion of the NCUA budget, and two, exam fees for 
Federally chartered institutions go down, because exam fees end 
up representing a smaller proportion of the NCUA budget.
    State-chartered credit unions have expressed concern about 
the increase to the 62 percent on both substantive and 
procedural grounds. I would be very interested to know our 
nominees' thoughts on the current overhead transfer rate; and 
in addition, do they believe that changes should be made in the 
way the NCUA board develops the transfer rate. More 
specifically, should there be greater transparency in the 
process?
    Once again, Mr. Chairman, thank you for holding this timely 
hearing, and thank you again to two extraordinary nominees that 
are before us here today.
    Chairman Sarbanes. Thank you very much, Senator Johnson.
    I will now turn to the nominees. It is the practice of this 
Committee to swear nominees in before giving their testimony, 
so I would ask you to stand and take the oath.
    [Oath administered to nominees.]
    Chairman Sarbanes. Thank you very much. Senator Johnson, 
why don't we hear from you? I notice the staff, which is very 
sensitive to these matters, has put your nameplate there as 
Senator Johnson. I guess once a Senator, always a Senator.
    [Laughter.]
    Ms. Johnson. Always known by your highest title.
    Chairman Sarbanes. We would be happy to hear from you.

              STATEMENT OF JOANN JOHNSON, OF IOWA

                     TO BE A MEMBER OF THE

           NATIONAL CREDIT UNION ADMINISTRATION BOARD

    Ms. Johnson. Thank you very much, Mr. Chairman.
    Mr. Chairman, Senator Gramm, Senator Johnson, thank you 
very much for giving me the opportunity to appear today as a 
nominee for the board of the National Credit Union 
Administration. I am deeply honored to have been nominated by 
President Bush to serve our country in this way, and I am 
grateful for the attentive consideration this Committee has 
given me since the President forwarded my name to you for your 
consideration.
    I would also like to thank Senator Grassley for all he has 
done on my behalf, helping me through this nomination process.
    Chairman Sarbanes. I know he was planning to try to be here 
to introduce you, but he is tied up as I understand it, we were 
informed, at a meeting of the Senate Judiciary Committee.
    Ms. Johnson. Fine. He may try to stop by.
    Chairman Sarbanes. So we understand.
    Ms. Johnson. Thank you.
    I also want to thank NCUA Chairman Dennis Dollar for all of 
his assistance, and my new colleague, Deborah Matz, for her 
camaraderie as we travel a common course together. I would also 
like to acknowledge the constant support of my husband, Brian, 
who could not be here today.
    In accepting the President's recess appointment on January 
22, I traded in my legislator duties as an Iowa State Senator 
for regulator responsibilities, and having been a legislator, I 
appreciate and respect the distinction between the two. I 
learned the skills of a legislator and the need to hear all 
sides of an issue, and chart a course for an equitable 
solution. I will be continuing that policy at NCUA, if 
confirmed, and consultations with Congress will be an important 
part of the deliberative process I shall engage in as a NCUA 
board member.
    I do not bring an agenda with me to this position, but I do 
have some standards that will guide my actions as a regulator. 
I want to be sure NCUA's core duties are done extremely well, 
maintaining a robust share insurance fund and an effective 
supervision program, critical elements to the independent 
credit union movement. I want to emphasize the wise use of 
resources at NCUA, and I want to be responsive to credit unions 
to develop prudent decisions that meet the needs of a dynamic 
and growing industry.
    In my few weeks on the NCUA board, I have spent much of my 
time meeting with NCUA office directors, studying NCUA 
programs, and meeting with other interested parties to gain a 
fair assessment of the larger credit union picture. The 
consultations I have had with you, Mr. Chairman, and other 
Members of the Committee in preparation for this hearing have 
been valuable to me as I assess the challenges ahead.
    My Iowa background encompasses a background of family 
agriculture, education, and community service. I have also 
served more than 7 years in the Iowa Senate. I was privileged 
to chair two committees, the Ways and Means Committee and the 
Commerce Committee in the Senate. My duties called on me to 
address and negotiate diverse issues concerning taxes and 
budgeting, commerce, financial institutions, and economic 
development. Consequently, I believe I will bring the necessary 
skills with me to judge fairly the important policies and 
issues that will come before me at NCUA.
    I know this Committee is looking for the Board to exercise 
good judgment. That means maintaining a safe and sound credit 
union financial system, which is exactly what we have inherited 
and what I am committed to maintain and bequeath to my 
successors.
    With so many people continuing to join credit unions around 
the country, more Americans, whether they know it or not, 
depend on the regulatory decisions and systems that ensure 
quality and integrity nationally. Well-run credit unions that 
efficiently provide consumer financial services in today's 
diverse marketplace are an essential and vital part of the 
financial community in the United States, providing members 
credit for provident and productive purposes, just as they have 
done since they began to fill those needs at the beginning of 
the last century.
    Mr. Chairman, thank you for the opportunity to appear 
before the Senate Committee on Banking, Housing, and Urban 
Affairs today. I am honored to be here, and I pledge to work 
closely with you and Members of this Committee and the Congress 
during my term to ensure the continued health and sound 
policies for the Nation's credit union system.
    Thank you.
    Chairman Sarbanes. Thank you very much.
    Before we turn to Ms. Matz, we have been joined by Senator 
Grassley. Chuck, we went ahead because we understood you were 
tied up, but we would be very happy to hear from you now.

                STATEMENT OF CHARLES E. GRASSLEY

             A U.S. SENATOR FROM THE STATE OF IOWA

    Senator Grassley. Thank you.
    You have already been introduced to Senator JoAnn Johnson, 
so it is my privilege to speak in favor of her.
    Chairman Sarbanes. She just made a very good statement, so 
you are riding the wave here.
    [Laughter.]
    Senator Grassley. And I hate to have this letdown, but you 
know me.
    You know, it was about 16, 17 years ago I had the privilege 
of appearing before this Committee to introduce another Iowan, 
a former U.S. Senator from Iowa to this very same position. So 
it is a great deal of good feeling on my part that Iowans have 
so many well-qualified people to serve the National Credit 
Union people, and particularly to do it on their board.
    So I am here to introduce you to one of the three Bush 
nominees for this board. Ms. Johnson and I have a lot in common 
in the sense that we are both alumni of the University of 
Northern Iowa. Also we both served in the State legislature, 
although I served there before she was born, and we were both 
raised on farms and we grew up with an appreciation of a very 
unique way of life of the Midwest, maybe not just Iowa, but 
Iowa's kind of exceptional to us.
    JoAnn Johnson has been serving the State of Iowa since she 
became a dedicated teacher after graduation from that good 
university that teaches people how to teach well. She was a 
teacher and coach at Adair-Casey High School, and not only was 
she teaching physical education classes, but she also did the 
community things like teaching Sunday school and helping youth 
in 4-H clubs.
    Now since 1994, JoAnn Johnson has consistently displayed 
her leadership talents in the Iowa State legislature, being 
Chair of the Senate Commerce Committee. As chair of the Iowa 
Senate Ways and Means Committee, she helped reduce the tax 
burden for Iowans by over $700 million, helped to restructure 
the utility property tax system, and cochaired a 2 year interim 
study on State tax structure. In 1999, she was named Senator of 
the Year by an outstanding trade association in Iowa, the 
Associated General Contractors.
    Not only is she a leader, but I think something you have to 
be when you are a regulator, as she is in this position--you 
have to be a listener. She makes sound judgments after hearing 
both sides of the issue. She is dedicated to the people helping 
people philosophy that is the basis for credit unions, and as 
credit unions exist solely for the purpose of serving their 
members, I am confident that JoAnn Johnson will act in the best 
interests of all credit unions and the communities they serve, 
and for the national good. She is a voice that is right for the 
National Credit Union Board.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much. We certainly 
appreciate your statement. I know you have a very tight 
schedule, so we understand if you have to excuse yourself.
    Ms. Matz, we would be happy to hear your statement.

             STATEMENT OF DEBORAH MATZ, OF NEW YORK

                     TO BE A MEMBER OF THE

           NATIONAL CREDIT UNION ADMINISTRATION BOARD

    Ms. Matz. Thank you.
    Chairman Sarbanes, Senator Gramm, Senator Johnson, I appear 
before you today as a board member and nominee to the board of 
the National Credit Union Administration. With me today is my 
husband, Marshall Matz, and our son Peter, a sophomore at 
Langley High School in McLean, Virginia. Our daughter Hayley, a 
junior at Tulane University, is listening online.
    Chairman Sarbanes. Not a bad deal, Peter, to get out of 
school today for this event.
    [Laughter.]
    Ms. Matz. Mr. Chairman, first, I would like to thank you 
and the Committee for conducting this hearing so quickly after 
my nomination, especially given your full agenda. I appreciate 
the counsel and support that I have received from your staff, 
Steve Harris, Marty Gruenberg, and Judith Keenan, in 
particular.
    I am especially grateful to the distinguished Senate 
Majority Leader, Senator Tom Daschle, for recommending me, and 
to President Bush for nominating me to this position. Senator 
Daschle's support and confidence is deeply appreciated.
    I would like to thank NCUA Chairman Dennis Dollar and my 
fellow board member and nominee, JoAnn Johnson, for their warm 
welcome, and the spirit of professional collegiality that 
already exists on the board. And last, but not least, I want to 
thank the talented staff at NCUA who have provided thorough 
briefings and insights on many of the functions of this 
independent agency.
    Mr. Chairman, if confirmed, I will bring to the NCUA Board 
over 20 years of public sector experience. For 9 years, I 
served as an Economist with the Joint Economic Committee of 
Congress, followed by 7 years as a Presidential Appointee at 
the U.S. Department of Agriculture. While at USDA I chaired the 
Loan Resolution Task Force, created to resolve delinquent farm 
loans in excess of $1 million. When I was appointed to the Task 
Force, the portfolio was over $1 billion in principal; when the 
Task Force ended, we had resolved virtually all of the loans 
that were not encumbered by litigation or bankruptcy 
proceedings.
    What type of board member and regulator do I hope to be? I 
will have several guiding principles. I will work hard to 
ensure that credit unions remain safe and sound financial 
institutions. As a member of three credit unions, I will be 
dedicated to the goals and purposes of the original enabling 
legislation. I strongly identify with the ideal of helping 
working people and others who are not being served by 
traditional financial institutions. I will strive to be 
recognized as a fair and thoughtful regulator--one who realizes 
the value and necessity of regulation while being sensitive to 
the needs of those who are being regulated. If confirmed, I 
will work closely with all the Members of this Committee and 
Members of Congress, to insure the financial integrity of 
credit unions in a changing environment.
    In closing, I consider credit unions to be the jewel in the 
crown of the financial service sector. I will work diligently 
to protect this precious jewel, to end predatory loan 
practices, and to extend the benefits of credit unions to all 
eligible Americans, particularly the underserved.
    Mr. Chairman, thank you again for the opportunity to appear 
before you today. I would be pleased to answer any questions 
that you and your colleagues might have.
    Chairman Sarbanes. Thank you very much. I thank both of you 
for very good statements.
    As I indicated, I yield my time to Senator Johnson so he 
can pursue inquiry.
    Senator Johnson. Thank you, Mr. Chairman. I do not mean to 
be stepping out of line here.
    But as I observed, the question that I raised earlier in my 
opening statement had to do with the transfer rate and the 
transparency of the process determining those rates, and I 
wonder whether either of you would have any observations to 
share with us. I know that you are relatively early on in your 
career as a regulator, and it may be a bit unfair to spring 
this on you, but it is a question that I think is a fundamental 
one, and one that I think there is a great deal of interest in. 
Senator Johnson, any observations about the process or the 
proper rate?
    Ms. Johnson. Yes, sir.
    I recognize that there is considerable debate among the 
industry on this issue. Having come from a State legislative 
position and working within a State that has primarily State-
chartered credit unions, I had heard a little bit about the 
overhead transfer rate, and have thus heard more since I 
arrived here.
    The previous board adopted what they thought was a fair 
rate, and it actually was a reduction from 66 percent down to 
62 percent. They believed that that reflected the insurance 
costs that they were incurring, and as you know that rate is 
set for the next 2 years. The NCUA has had an outside 
consultant evaluate the process, and there were no significant 
flaws cited in that report. However, the report is ongoing.
    During my tenure, I intend to study this issue very 
closely. I have received the assignment, so to speak, of being 
the liaison to the National Association of State Credit Union 
Supervisors, or (NASCUS), and will be attending the NASCUS 
conference very soon, where I know I am going to hear more on 
this issue. I will study it and the recommendations that have 
been made by the outside consultant, and it would be my intent 
to be a very prudent steward of the resources and to run a lean 
and efficient agency.
    Senator Johnson. Very good.
    Ms. Matz, any observations you would share with us on this 
issue?
    Ms. Matz. I too have met with several of the State 
regulators and executives from State-chartered credit unions, 
and have heard a great deal about this issue. I told them that 
I would study this issue carefully. The Board does not have to 
act on this issue for another couple of years, so it is not an 
issue that I have looked into in depth, but I will, and I would 
be happy to work with you and your staff before we come to any 
agreement about how we are going to proceed.
    Senator Johnson. I think that is all that can be asked for.
    I appreciate your observations on both the substance of the 
rate and the transparency issue on process, and there is no 
question that this is an issue that will continue to be with us 
for some time. I have a great deal of confidence that you both 
will apply your best energy and thought to this issue. Thank 
you.
    Chairman Sarbanes. Thank you, Senator Johnson.
    Senator Gramm.
    Senator Gramm. Mr. Chairman, Senator Johnson--I know her 
mom is here. I do not know what other family members have come. 
I wanted to give her an opportunity to introduce her mother and 
whoever else is here that she would like to introduce.
    Ms. Johnson. Thank you, Senator.
    I would like to introduce Jean Johnson, who is sitting here 
in the front row. And I will introduce one other Iowan who I 
have with me. Julie Starnes will be joining me at the NCUA 
staff, so I am pleased to have Julie here as well.
    Chairman Sarbanes. We are pleased to have both of them 
here.
    Senator Gramm. I have always thought that a candidate 
supported by their mother must be all right.
    [Laughter.]
    Chairman Sarbanes. One not supported by their mother is 
certainly not the right one.
    [Laughter.]
    Senator Gramm. If your mother is not with you, you would 
better check your hand. I remember once I was debating Claude 
Pepper--you remember old Claude? And we were talking about 
Medicare, which is an excruciatingly difficult subject, and I 
got this note from the cloak room that I had a telephone call. 
So I walked to the cloak room, and my mother was on the phone. 
She says, ``When that sweet Claude Pepper's talking, you shut 
up and you listen to what he's got to say.''
    [Laughter.]
    Senator Gramm. Of course, Claude Pepper was as wrong as he 
could be.
    [Laughter.]
    Senator Gramm. But I shut up and listened to what he had to 
say.
    Mr. Chairman, I do not have any questions. I just would 
have this observation. At the beginning of every Congress, I go 
back and read the Constitution. I have always thought if I were 
on a regulatory body, that every 2 years I would go back and 
read the Act that established that body and set the rules.
    I would have to say that my dealings with credit unions 
have been very positive in my career in the Senate. The credit 
union in the modern era is an unusual entity in that it is a 
cooperative. It was established for a specific purpose. As I 
like to say, everybody should have an opportunity to join a 
credit union, but they ought not to have an opportunity to join 
the same credit union. So, the whole scope of membership is a 
very difficult issue, and it is an issue that it seems to me 
that you have to go back to the founding principles and judge 
things on the basis of them.
    Another issue is the role of credit unions. One of the 
problems with any institution is that it tends to move away 
from its original objective. And I think it is something that 
in your capacity, you need to watch very closely. I would have 
to say my State has a very large number of credit unions. Our 
credit unions perform excellent service, and I think they are 
basically safe and sound institutions.
    But, it is very important to look at the scope of 
membership issue. You had the question from Senator Johnson, 
basically related to the insurance fund, and it is never 
popular to raise fees. It is always popular to lower them. But, 
your mandate is to try to figure out what is in the public 
interest, and whatever is in the public interest will 
ultimately be in the interest of credit unions.
    So I look forward to working with you.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much, Senator Gramm.
    I would like to first pursue one of the points Senator 
Gramm mentioned. This Committee moved quickly in 1998 with the 
Credit Union Membership Access Act after the credit union 
movement faced, in a sense, a very difficult decision handed 
down by the Supreme Court that might well have--I mean, the 
predictions of the impact on the credit union movement were 
quite strong, and I think probably correct.
    That legislation, which provided a statutory basis for the 
multiple common bond, which is now in practice, also included a 
number of safety and soundness reforms which were based upon 
recommendations from the Treasury Department as a consequence 
of a very detailed study. Those included establishing of 
statutory capital standards for credit unions, and a system of 
prompt corrective actions to enforce those standards. Have you 
had a chance to evaluate how well that aspect of that 
legislation is being carried out, the safety and soundness 
reforms? Senator Johnson?
    Ms. Johnson. In our early weeks as members of the board, we 
have dealt with some prompt corrective action situations. So 
from the little that I have seen, yes, there is the opportunity 
to be--you know, to act quickly and to take corrective action 
as needed. To give an in-depth on it would be premature for me 
to say.
    But safety and soundness is bottom line. It is why we are 
there, and I think the things that are in place are adequate as 
far as I can see at this point.
    Chairman Sarbanes. Ms. Matz.
    Ms. Matz. I would agree. At our board meeting just 
yesterday, the board voted unanimously to receive quarterly 
call reports instead of semiannual call reports, so that the 
data can be monitored more closely. And the prompt corrective 
actions, as far as I can see, are working well.
    Chairman Sarbanes. I just want to underscore, that was a 
package at the time, and the safety and soundness provisions 
that were included in the legislation did not come out of thin 
air. They were the result of a very careful study by the 
Treasury Department. So we are anxious that part of the 
legislation also receive attention.
    I want to ask you a more far-reaching question. Let me set 
the premise a little bit. Credit unions benefit from 
significant tax and regulatory benefits that are not available 
to banks and thrifts, when you look at the range of financial 
institutions. They are tax-exempt. They have a separate, 
independent Federal regulator and a separate deposit insurance 
fund. And, of course, we hear about this from others from time 
to time.
    The basis for doing this, at least in the perception of 
many, is that because they have a particular mission with an 
important public benefit in terms of meeting the consumer 
credit needs of people that otherwise might not have access, 
that they are entitled to this special status.
    Now on the part of some of the credit unions, they have 
recently been seeking significantly expanded powers, reductions 
in regulatory limitations--for instance, unlimited authority to 
offer their members business loans, either elimination or 
significant weakening of the common bond requirement, which is 
what we passed after the Supreme Court really raised a very 
difficult barrier. NCUA has been very liberal in allowing the 
community credit charter to be used over an expansive 
geographical area. For example, it has allowed a community-
chartered credit union to define the entire city of San 
Francisco as its community.
    Do you feel there is any perception in the industry--and I 
would ask you all whether you perceive--that there is a tension 
between these two things? The more credit unions push to become 
like other financial institutions--in other words, move out of 
the mold that has been set for them--then the more difficult it 
is to justify special status in terms of taxing and regulating.
    After all, if they are going to end up being like and 
behaving like any other financial institution, a bank or a 
thrift, then why shouldn't they be subjected to the same 
framework of treatment as a bank or thrift? Do you have any 
views on that issue, either yourself or any view on whether the 
industry understands or perceives a growing tension in this 
regard?
    Ms. Johnson. Senator, I dealt with the same tension on the 
State level, especially while chairing the Ways and Means 
Committee. The tax issue was there all the time. I used to call 
it kind of the turf battle between the financial institutions. 
And in my capacity as chair, I did do things for the banks. We 
did Subchapter S legislation under my tenure, and I dealt with 
tax issues for the banks. At the same time, I have always felt 
that the credit unions deserve their tax-free status because of 
the way that they are structured. They are a nonprofit 
cooperative, and under that structure, I still believe that the 
tax-free status is still applicable.
    You are right that there will always be that continued 
tension as each tried to fight out that turf. But credit unions 
do still have a restricted field of membership, and to that end 
they do have restrictions on them that other financial 
institutions do not have.
    Chairman Sarbanes. Ms. Matz.
    Ms. Matz. Well, you are raising several issues that 
confronted the board at our first meeting on February 7, just 
after I had arrived at the board on January 23; particularly 
the issue of what constitutes local, and how big should credit 
unions be.
    At that meeting, I abstained on a vote of converting a 
credit union to a community charter because I just was not sure 
of what the Congressional intent was on the word local. I had 
asked our attorneys what the legislative history was, and was 
advised that there is no legislative history on the word, 
local. So perhaps this Committee can give us some guidance on 
that.
    But you are raising an issue that we are trying to deal 
with, trying to decide what is local and what are common bonds, 
and I will work with this Committee to try to come to some 
determination on those issues.
    Chairman Sarbanes. Let me just throw into the mix. It is my 
own view that the more the credit unions seek to be like other 
financial institutions in the range of their powers and in 
their membership, that they begin to undercut or weaken the 
argument that exists to give them differential tax and 
regulatory treatment. I mean, otherwise you are creating a 
situation in which particular institutions have these tax and 
regulatory benefits and yet on the operating side--they 
eventually would be behaving just like any other financial 
institutions. And, of course, those institutions say, why 
should we be placed in this competitive situation? Either give 
us the tax and regulatory benefits, or treat them in that area 
the same way that we are treated.
    I am in favor of the bargain that was struck, which is to 
carry through on what I think is the basic purpose of the 
credit union movement, and I think is the underlying rationale 
for this tax and regulatory treatment. But it can create a 
tension, and I am just interested whether you perceive that the 
industry is aware of that. Do you have any sense whether they 
perceive that there is a tension there?
    Ms. Johnson. Senator, one of the things that we are really 
focused on is, we have dealt with some of these community 
charters, really delving into the business plan that they must 
present on how they are going to serve this community. And for 
those that want to add an underserved area in particular, 
paying attention to how do they actually intend to serve this 
underserved area. That is a requirement, and that is under our 
purview, and I assure you that that will be given the strictest 
attention.
    Senator Gramm. Mr. Chairman, one other provision was 
included in the bill responding to the Supreme Court decision. 
And that was, for the first time in a formal way, we set a cap 
on the amount of business lending that credit unions could do. 
I identify very much with what the Chairman is saying. I tried 
to make it clear to all my credit union people that ultimately 
you have to decide. If you want to do a bunch of commercial 
lending, you do not want to be in the credit union business.
    I know there has been a bill in the House that would raise 
the limit of commercial lending, I think it is 12\1/2\ percent 
under our bill. I am very much opposed to that bill in the 
House. My view is credit union commercial lending should be 
very narrow, and it should be focused very strictly and very 
tightly defined on their members. I think if credit unions are 
going to get into very substantial commercial lending, they are 
running right out from under their charter. And I do believe 
that the board needs to take a good, hard, dispassionate look 
at this field of membership issue. Because again, I think it is 
very important that everybody have an opportunity to join a 
credit union, and the field never should be so narrow that that 
is not the case.
    But it is the natural tendency of institutions to want to 
grow and prosper. I think it is very important that this 
lending cap on commercial lending be very narrowly defined, 
that we do not let institutions get around it. And it is very 
important to keep an eye on this scope of membership issue. 
Because I agree with the Chairman that in the end, if you are 
going to get the benefits of being in the credit union 
business, you have to be a credit union.
    You could almost say a partnership is nonprofit, in the 
sense that the benefits go to the partners. So, I do not think 
that in and of itself is enough to justify the tax exemption. 
It has to be carrying out the original mission of the law, and 
that original mission was to primarily provide consumer lending 
on a cooperative basis where people pool their resources and in 
the process got access to credit.
    I do think there is a real market out there for credit 
unions in that particular area. But there is this very real 
temptation to get off into other areas, and again there is a 
limit--I do not know how you would define it, but I think I 
would know it when I see it--where you get out of the credit 
union business and into commercial lending on the equivalent of 
a bank or a thrift.
    Probably, given you all have been on the job a short period 
of time, these are the two most profound issues related to 
credit unions. We probably are not fair putting you on the spot 
about it. But these are very real issues, and they are things 
we were concerned about when we wrote that law.
    Chairman Sarbanes. My own perception is that this issue 
tends to be driven by a few large credit unions with a very 
highly active management, and they are driving this thing. I 
think most of the credit unions are staying within the original 
charter purposes. But it is an important issue, and as Senator 
Gramm says, we really do not expect you to give us a long 
disquisition on it now.
    I do want to note that the U.S. credit union movement has 
been involved in trying to help develop credit unions abroad in 
countries that are not well-served in terms of their financial 
institutions. That is a very constructive initiative, and it 
obviously has to be done carefully. But they are in a position 
maybe to make a real contribution in that regard. We had a 
hearing here on remittances for Mexico and Latin America, and 
one of the ways of trying to address this was to see if we 
could not strengthen the credit union movement in those 
countries.
    I have one final question, and it really tracks again 
something that Senator Gramm said at the outset. I am 
interested in your view of the mission of the NCUA. Should it 
be an independent regulator of the credit union industry, a 
promoter of the credit union industry, a combination of both? 
Do you have any view on that?
    Ms. Johnson. The NCUA is the regulator, first and foremost. 
Do I believe in credit unions? Absolutely, but I am not their 
cheerleader. I am there to regulate, and I know that decisions 
that I make are not always going to be what they want to hear. 
But my decisions will have to be what I believe is best for the 
industry.
    I am interested in moving the industry forward and to meet 
the changing needs of their members, because we do have 
changing needs in this day and age. We saw how September 11 
changed things so drastically in a short period of time for a 
lot of industries, including the financial industry. So we have 
to be up to speed and I think we have to be able to deal with 
things on a very quick turnaround. But I am there to regulate, 
and that will be my mission.
    Chairman Sarbanes. Ms. Matz.
    Ms. Matz. I would agree with that. Safety and security of 
the credit unions is clearly our first priority. To the extent 
we can help credit unions achieve safety and soundness, that is 
our mission.
    Chairman Sarbanes. Thank you.
    Senator Gramm and I have been on this Committee long enough 
that we had to clean up the savings and loan situation, which 
cost the taxpayers hundreds of billions of dollars. That was 
just a breakdown altogether. You cannot go through that 
experience without being mindful of the safety and soundness 
considerations.
    Thank you both very much. We have some hearings scheduled 
for next week, which will be the last week before the recess. I 
am hopeful we can arrange to put these nominees on one of those 
hearing dates, and schedule a short business meeting to move 
these nominations forward. We are anxious to get you fully in 
place.
    Thank you very much. The hearing is adjourned.
    [Whereupon, at 4:10 p.m., the hearing was adjourned.]
    [Prepared statements, biographical sketches of the 
nominees, and additional material supplied for the record 
follow:]
               PREPARED STATEMENT OF SENATOR TIM JOHNSON
    Mr. Chairman, thank you for moving forward so quickly with the 
confirmation of Deborah Matz and JoAnn Johnson to the NCUA Board. It is 
critical that we move as quickly as possible to get these oversight 
positions filled, and strong supervision of our Nation's financial 
institutions is of particular importance.
    It is a special pleasure for me to be here today to welcome nominee 
Matz before the Committee. I have known Debbie and her husband Marshall 
for many years, and I am confident that Debbie will make a superb NCUA 
board Member. In fact, Mr. Chairman, I know that you know her abilities 
and reputation firsthand because of her service as a member of the 
Joint Economic Committee during your tenure as Chairman. In continuing 
her long and distinguished public service career, Debbie served as 
Deputy Assistant Secretary of Agriculture for Administration, filling a 
very important role of overseeing the administration of the Department 
of Agriculture's day-to-day operations.
    I would like to take just a moment to thank the nominees for their 
willingness to serve on the NCUA Board. I am confident both of you 
could earn much higher salaries in the private sector, and we are 
grateful to you for your commitment to public service.
    Mr. Chairman, credit unions and the financial services industry 
have changed dramatically since the founding of the NCUA in 1970. 
Today, over 10,000 credit unions with over $480 billion in assets serve 
more than 79 million people in the United States with a broad array of 
services--from basic savings accounts, to credit cards, to home 
mortgages. Yet at the same time, the basic mission of credit unions 
remains the same: to serve their members. Credit unions enjoy a 
tremendously loyal customer base, and most credit unions work hard to 
create an environment where members feel comfortable doing business.
    Unfortunately, I have several commitments this afternoon that will 
prevent me from staying to the end of this hearing. But there is one 
issue that I would ask the nominees to address either during the 
question and answer period or in a written submission to the Committee.
    Many State-chartered credit unions have expressed concern over the 
process by which the NCUA establishes its overhead transfer rate. As I 
understand it, the overhead transfer rate is the amount of money taken 
out of the ``Share Fund'' to pay for the NCUA's insurance-related 
activities. Historically, NCUA has estimated the transfer rate at 50 
percent. Recently, however, it raised the rate to 67 percent, and then 
lowered it to 62 percent.
    The NCUA's overall budget is funded partially by exam fees from 
Federally chartered credit unions and partially by the Share Fund. When 
the transfer rate is increased, two things happen: (1) the Share Fund 
provides a larger proportion of the NCUA budget; and (2) exam fees for 
Federally chartered institutions go down because exam fees end up 
representing a smaller proportion of the NCUA budget. State chartered 
credit unions have expressed concern about the increase to 62 percent 
on both substantive and procedural grounds. I would like to hear your 
thoughts on the current overhead transfer rate. In addition, do you 
believe changes should be made to the way the NCUA Board develops the 
transfer rate? Should there be more transparency in the process?
    Once again, Mr. Chairman, thank you for holding this hearing, and 
thanks to our two witnesses for their willingness to appear before us 
today.
                               ----------
               PREPARED STATEMENT OF CHARLES E. GRASSLEY
                 A U.S. Senator from the State of Iowa
                             March 14, 2002

    I am glad to have the pleasure to introduce JoAnn Johnson today as 
one of three Bush Administration nominees for the National Credit Union 
Board. JoAnn Johnson and I have a lot in common. We are both alumni of 
the University of Northern Iowa and alumni of the Iowa State 
Legislature. We were both raised on farms, and grew up with an 
appreciation for the unique way of life in Iowa.
    JoAnn Johnson has been serving the State of Iowa since she became a 
dedicated teacher and coach for Adair-Casey High School in Adair, Iowa. 
Not only was she teaching physical education classes, but she also was 
teaching Sunday school and helping youth in the 4-H club.
    Since 1994, JoAnn Johnson has consistently displayed her leadership 
talents in the Iowa State Legislature. She was named Chair of the State 
Senate Commerce Committee for the 29th General Assembly. As Chair of 
the Iowa Senate Ways and Means Committee, Senator Johnson helped reduce 
the tax burden for Iowans by over $700 million. She restructured the 
utility property tax system, and cochaired a 2 year interim committee 
on State tax structures. In 1999, JoAnn Johnson was named Senator of 
the Year by the Associated General Contractors of Iowa.
    Not only is she a leader, but JoAnn Johnson is a listener. She 
makes sound judgement after hearing both sides of the issue. She is 
dedicated to the ``people-helping-people'' philosophy. As credit unions 
exist solely for the purpose of serving their members, I am confident 
that JoAnn Johnson will act in the best interest of all credit unions 
and the communities they serve. She is a voice that is right for the 
National Credit Union Board.
    Thank you.
                               ----------
                  PREPARED STATEMENT OF JOANN JOHNSON
         Member-Designate, National Credit Union Administration
                             March 14, 2002

    Mr. Chairman, Senator Gramm, and distinguished Members of the 
Committee, thank you very much for the opportunity to appear before you 
today as a nominee for the Board of the National Credit Union 
Administration. I am deeply honored to have been nominated by President 
Bush to serve our country in this way, and I am grateful for the 
attentive consideration this Committee has given me since the President 
forwarded my name to you for your consideration.
    I want to thank Senator Grassley for all he has done on my behalf, 
introducing me to the Committee and advising me throughout this 
nomination process. I also want to thank NCUA Chairman Dennis Dollar 
for all his assistance and my new colleague, Deborah Matz for her 
camaraderie as we travel a common course together. I also want to 
acknowledge the constant support of my husband, Brian.
    In accepting the President's recess appointment on January 22, I 
traded in my legislator duties as an Iowa State Senator for regulator 
responsibilities--and having been a legislator, I appreciate and 
respect the distinction between the two. I learned the skills of a 
legislator and the need to hear all sides of an issue and chart a 
course to an equitable solution. I will be continuing that policy at 
NCUA, if confirmed, and consultations with Congress will also be an 
important part of the deliberative process I shall engage in as a NCUA 
Board Member.
    I do not bring an agenda with me to this position, but I do have 
some standards that will guide my actions as a regulator:

 I want to be sure NCUA's core duties are done extremely well; 
    maintaining a robust share insurance fund and an effective 
    supervision program--critical elements to the independent credit 
    union movement in my opinion.
 I want to emphasize the wise use of resources at NCUA.
 I want to be responsive to credit unions to develop prudent 
    decisions that meet the needs of a dynamic and growing industry.

    In my few weeks on the NCUA Board, I have spent much of my time 
meeting with NCUA office directors, studying NCUA programs, and meeting 
with other 
interested parties to gain a fair assessment of the larger credit union 
picture. The consultations I have had with you, Mr. Chairman, and other 
Members of the Committee in preparation for this hearing have been 
valuable to me as I assess the challenges ahead.
    My Iowa background encompasses a background in family agriculture, 
education, and community service. I also served nearly 8 years in the 
Iowa Senate. I was privileged to chair two committees, the Ways and 
Means Committee and the Commerce Committee. My duties called on me to 
address and negotiate diverse issues concerning tax and budgeting, 
commerce, financial institutions, and economic development. 
Consequently I believe I bring the necessary skills with me to judge 
fairly the important policy issues that will come before me at NCUA.
    I know this Committee is looking for the Board to exercise good 
judgment. That means maintaining a safe and sound credit union 
financial system, which is exactly what we have inherited and what I am 
committed to maintain and bequeath to my successors.
    With so many people continuing to join credit unions around the 
country, more Americans, whether they know it or not, depend on the 
regulatory decisions and systems that assure quality and integrity 
nationally. Well-run credit unions that efficiently provide consumer 
financial services in today's diverse marketplace are an essential and 
vital part of the financial community in the United States providing 
members credit for provident and productive purposes--just as they have 
done since they began to fill those needs at the beginning of the last 
century.
    Mr. Chairman, thank you for the opportunity to appear before the 
Senate Committee on Banking, Housing, and Urban Affairs today. I am 
honored to be here and I pledge to work closely with you and Members of 
this Committee and the Congress during my term to ensure the continued 
health and sound policies for the Nation's credit union system.

















                   PREPARED STATEMENT OF DEBORAH MATZ
         Member-Designate, National Credit Union Administration
                             March 14, 2002

    Chairman Sarbanes, Senator Gramm, Members of the Committee, I 
appear before you today as a Board member and nominee to the Board of 
the National Credit Union Administration. With me today is my husband, 
Marshall Matz, and our son Peter, a sophomore at Langley High School. 
Our daughter Hayley, a junior at Tulane University, is listening to us 
online.
    Mr. Chairman, first and foremost, I would like to thank you and the 
Committee for conducting this hearing so quickly after my nomination, 
especially given your full agenda. I appreciate the counsel and support 
that I have received from your staff, Steve Harris, Marty Gruenberg, 
and Judith Keenan, in particular.
    I am especially grateful to the distinguished Senate Majority 
Leader, Senator Tom Daschle, for recommending me, and to President Bush 
for nominating me, to this position. Senator Daschle's support and 
confidence is deeply appreciated.
    I would like to thank NCUA Chairman Dennis Dollar and my fellow 
Board member and nominee, JoAnn Johnson, for their warm welcome and the 
spirit of professional collegiality that already exists on the Board. 
And last, but not least, I want to thank the talented staff at NCUA who 
have provided thorough briefings and insight on the many functions of 
this independent agency.
    Mr. Chairman, if confirmed, I will bring to the NCUA Board over 20 
years of public sector experience. For 9 years, I served as an 
Economist with the Joint Economic Committee of Congress, followed by 7 
years as a Presidential appointee at the U.S. Department of Agriculture 
(USDA). While at USDA I chaired the Loan Resolution Task Force, created 
to resolve delinquent farm loans in excess of $1 million. When I was 
appointed to the Task Force, the portfolio was over $1 billion in 
principal; when the Task Force ended, we had resolved virtually all of 
the loans that were not encumbered by litigation or bankruptcy 
proceedings.
    What type of Board member and regulator do I hope to be? I will 
have several guiding principals:

 I will work hard to ensure that credit unions remain safe and 
    sound financial institutions.
 As a member of three credit unions, I will be dedicated to the 
    goals and purposes of the original enabling legislation. I strongly 
    identify with the ideal of helping working people and others who 
    are not being served by traditional financial institutions.
 I will strive to be recognized as a fair and thoughtful 
    regulator--one who realizes the value and necessity of regulation 
    while being sensitive to the needs of those who are being 
    regulated.
 If confirmed, I will work closely with all Members of this 
    Committee, and all Members of Congress, to ensure the financial 
    integrity of credit unions in a changing environment.

    In closing, I consider credit unions to be the ``jewel'' in the 
crown of the financial service sector. I will work diligently to 
protect this precious jewel; to end predatory loan practices; and to 
extend the benefits of credit unions to all eligible Americans, 
particularly the underserved.
    Mr. Chairman, thank you again for the opportunity to appear before 
you today. I would be pleased to answer any questions that the 
Committee may have.























                             NOMINATION OF:
                     ANTHONY S. LOWE, OF WASHINGTON
                           TO BE ADMINSTRATOR
                    FEDERAL INSURANCE AND MITIGATION
                     ADMINISTRATION OF THE FEDERAL
                      EMERGENCY MANAGEMENT AGENCY

                              ----------                              


                         WEDNESDAY, MAY 8, 2002

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:20 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee), presiding.

         OPENING COMMENTS OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. The heairng will come to order. I 
apologize, Mike, and also to the nominee, but I ran into a bad 
backup on the Baltimore-Washington Parkway on my way in.
    Before I do my opening statement, I will go directly to 
Senator DeWine, who is here to introduce Anthony Lowe. I know 
he has other conflicting engagements and we can take care of 
that and you can go on about your business.

                    STATEMENT OF MIKE DEWINE

             A U.S. SENATOR FROM THE STATE OF OHIO

    Senator DeWine. Mr. Chairman, thank you very much. As 
someone who lives in Annandale, Virginia, when I am out here, I 
understand about the traffic backups and what can happen.
    It is my pleasure today to introduce Anthony Lowe, to be 
the 
Administrator of the Federal Insurance and Mitigation 
Administration at FEMA. Let me first welcome his wife, Angela, 
his daughters, Ashton and Ariana, his mother, Betty Harris, his 
brother, Rev. Paul Lowe, his mother-in-law, Barbara Barry, her 
husband, Mohamado, and father-in-law, Thomas Caldwell, who are 
all seated here behind me.
    Chairman Sarbanes. Well, we are very pleased to have the 
family here. Why don't you all stand up so that we can 
acknowledge you.
    Very good. Thank you all for coming.
    Senator DeWine. Mr. Chairman, let me just take a moment to 
tell the Committee about Anthony's background and 
qualifications. In 1982, Anthony graduated from the University 
of Washington with a degree in international political science. 
He went on to receive his law degree from the University of 
Santa Clara in California. He has studied law in Singapore and 
also in China.
    Prior to working directly for me and on the Judiciary 
Committee, Anthony was a Land Planning Commissioner for the 
City of Redmond, Washington, from 1994 to 1996. In this 
position, Anthony had an opportunity to really apply many of 
the land use planning guidelines that are now administered by 
the Federal Insurance and Mitigation Administration.
    He served a number of years, Mr. Chairman, as my Senior 
Legislative Counsel on the Antitrust, Competition, and Business 
and Comsumer Rights Subcommittee of the Judiciary Committee.
    Let me just ask the Committee to submit the rest of my 
statement, make it a part of the record. I just want to 
comment, if I could, Mr. Chairman, and share with you my 
experiences with 
Anthony.
    Chairman Sarbanes. The full statement will be included in 
the record.
    Senator DeWine. I appreciate that very much. This is an 
individual who I have worked with on a daily basis closely for, 
as I said, a number of years. He is someone who every single 
day gets the job done. Candidly, many times I never knew how he 
got the job done. But he has great people skills, Mr. Chairman, 
and you can appreciate that with the people who help you get 
your mission done and achieve what you want to achieve every 
day.
    Anthony was someone who I would talk to about issues in 
broad concept, and he would go out, put the legislation 
together, and see that it got passed. That is the type of 
leadership ability he has. And, as you know, to survive around 
here, not only do you have to have good ideas and good 
analytical ability, and serving on the Judiciary Committee, you 
have to be a good lawyer. But, you also have to get along with 
people, and you have to know how to deal with people. And, you 
have to have some management skills. Anthony has these things. 
And so, I know that for this position and, candidly, for any 
position that Anthony would be nominated for, he will do just a 
fantastic job.
    I want to submit my written statement, which goes into a 
lot more detail, to the Committee and thank you for your 
courtesy and for considering Anthony for this very important 
position.
    Chairman Sarbanes. Well, thank you very much, Senator 
DeWine, for a very strong statement. I have always been 
impressed by the effectiveness and skill of Senator DeWine in 
dealing with some complex issues. And I am pleased this morning 
that we are uncovering the basis on which he was able to do 
that.
    [Laughter.]
    Senator DeWine. That is true, Mr. Chairman.
    [Laughter.]
    My concern, if I could interject, is where I go from here.
    [Laughter.]
    But we will see. Maybe my true ability will be uncovered 
now. So, I thank you.
    Chairman Sarbanes. Thank you very much.
    This morning, the Committee is considering the nomination 
of Anthony S. Lowe, to be the Administrator of the Federal 
Insurance and Mitigation Administration, called FIMA, at the 
Federal Emergency Management Agency, called FEMA. So we have 
FIMA inside of FEMA here, and I want to welcome Mr. Lowe and 
his family here today.
    Anthony Lowe is no stranger to public service. From 1997 
until this nomination, he was Senior Legislative Counsel with 
the U.S. Senate Judiciary Committee's Subcommittee on 
Antitrust, Competition, and Business and Consumer Rights, as we 
have just heard from Senator DeWine. Before joining the 
Subcommittee, he served the citizens of his home State of 
Washington in a number of positions--Deputy Prosecutor for King 
County, member of the planning commission for the City of 
Redmond, Legal Counsel for the Washington State Senate, and a 
previous tenure here as Legislative Assistant to our former 
colleague, Senator Slade Gorton.
    Anthony Lowe is a graduate of the University of Washington, 
cum laude, Santa Clara University School of Law, and only 
recently, he went on to get a degree from the Virginia Union 
University School of Theology. So, if all else is of no avail, 
he is in a position maybe to bring some divine grace upon us in 
solving some of these problems.
    [Laughter.]
    As Administrator of the Federal Insurance and Mitigation 
Administration, Mr. Lowe will have the opportunity to continue 
his public service by helping communities prepare to meet some 
of their most difficult challenges.
    Only last week, we saw in Maryland, when the tornado 
touched down, how extensive the devastation from a natural 
disaster can be to a community, taking people's lives and 
destroying their homes and their businesses.
    The Insurance and Mitigation Administration works with 
communities around the country to help reduce damages from 
disasters like tornados, hurricanes, floods, and fires. Its 
assistance has led to increased use of wind-resistant and 
water-resistant building designs, elevation of buildings above 
flood levels, adoption of stricter building codes and more 
disaster-sensitive land-use planning.
    FIMA also runs the National Flood Insurance Program. There 
was a reorganization, in which they put together the Federal 
Flood Insurance Program and the Mitigation Administration. So 
both of those now would be under Mr. Lowe's jurisdiction.
    The National Flood Insurance Program was created in 1968 in 
response to the lack of such insurance being offered by the 
private sector. This program made flood insurance available in 
the communities that adopted flood plain management regulations 
designed to reduce future damages from flooding, and it is now 
available in over 19,000 participating communities nationwide. 
The availability of flood insurance helps Americans prepare for 
floods, while reducing the need for Federal disaster assistance 
after the flood. And the improved flood plain management 
techniques adopted by communities participating in the program 
have led to a significant reduction in both the number of 
losses and the cost of losses due to floods.
    As FIMA's Administrator, Mr. Lowe will work closely with 
communities across the country as they prepare for and respond 
to disasters. We look forward in this Committee to working with 
him in this very important responsibility. I know that FEMA 
Administrator Allbaugh is anxious to have you on the job. He 
and I in fact have conversed about it, and so we have tried to 
move this hearing up and do it promptly in an effort to try to 
get you on the job.
    Now, before we take your opening statement, I want to ask 
you to stand and take the oath. It is a practice of this 
Committee to place our nominees under oath.
    Do you swear or affirm that the testimony that you are 
about to give is the truth, the whole truth, and nothing but 
the truth, so help you God?
    Mr. Lowe. I do.
    Chairman Sarbanes. Do you agree to appear and testify 
before any duly constituted committee of the U.S. Senate?
    Mr. Lowe. I do.
    Chairman Sarbanes. Thank you very much. We would be happy 
to hear your statement.

          STATEMENT OF ANTHONY S. LOWE, OF WASHINGTON

           TO BE ADMINSTRATOR, FEDERAL INSURANCE AND

                   MITIGATION ADMINISTRATION

              FEDERAL EMERGENCY MANAGEMENT AGENCY

    Mr. Lowe. Thank you very much for holding this hearing so 
expeditiously on my nomination for the Administrator of the 
Federal Insurance and Mitigation Administration at FEMA.
    It is an honor to appear before the Committee. I would like 
to express my deep appreciation to President Bush for 
nominating me for this position, as well as to Director 
Allbaugh, for the confidence and trust that he has placed in 
me.
    The Nation, particularly since September 11, recognizes the 
outstanding leadership of the President and Director Allbaugh, 
and it would be my privilege to serve alongside them.
    I want to thank Senator DeWine for his kind and gracious 
remarks, and for giving me an opportunity to serve the country 
as an attorney on his Judiciary Subcommittee staff. Senator 
DeWine, former Senator Slade Gorton, the late Judge William L. 
Dwyer, the late Marian Diggs and Alice Warinner, have all 
taught me to strive for the public good, intellectual 
excellence, personal integrity, and then to pass it on, and I 
thank them.
    I would also like to thank those who support me from day-
to-day and ground me. First, I would like to introduce my wife, 
Angela Caldwell Lowe, her father, Thomas Caldwell, my daughter, 
Ariana--she is 10 months old--my mother, Betty Harris.
    Chairman Sarbanes. I see Mr. Caldwell is carrying out the 
responsibilities of a grandfather here this morning.
    [Laughter.]
    Mr. Lowe. Linda is a close friend of our family from North 
Carolina, who accompanied my brother, Reverend Doctor Paul 
Lowe. Mohamadou Barry, who is holding my daughter Ashton Lowe, 
who is almost 5 years old. My mother-in-law, Barbara Barry, and 
a dear friend of mine, Angela Williams, who served with me on 
the Judiciary Committee, working for Senator Kennedy. And we 
also went through theology school together, both of us being on 
staff on the Judiciary Committee, and on the weekends traveling 
to Richmond to attend Virginia Union University, School of 
Theology.
    Chairman Sarbanes. Is there something about the work of 
that Subcommittee that drives you to divinity school?
    [Laughter.]
    Mr. Lowe. I would also like to say something about the FEMA 
staff, because a number of them have come. I am not sure if 
that is support, but I hope so.
    Howard Leikin, the Deputy Insurance Adminstrator at FIMA. 
The Acting Director sits behind me, Bob Shea, who is also the 
Deputy Mitigation Administrator at FIMA. Both of them have long 
years of commitment at FIMA and I appreciate their support and 
assistance throughout this process. There are a number of other 
FEMA staff also present, and I also appreciate them appearing 
as well to show support for me.
    If confirmed for this position at FEMA, I would be the 
first 
administrator of the newly realigned Federal Insurance and 
Mitigation Administration. Last August, Director Allbaugh, as 
part of the major realignment within FEMA, brought together the 
Former 
Federal Insurance Administration and the Former Mitigation 
Directorate into a single organization, the Federal Insurance 
and Mitigation Administration, FIMA.
    All of the resources of both organizations are now merged 
under the new FIMA, to form a cohesive unit to coordinate the 
delivery of the Nation's hazard reduction programs. These 
programs have been called the cornerstone of emergency 
management since they focus on the protection of life and 
property.
    As Administrator of FIMA, I would be an outspoken advocate 
for the Administration's mission to protect lives and to reduce 
the loss of property from disasters. My vision is for the 
Federal Insurance and Mitigation Administration to become the 
premier all-hazard agency across the Federal Government. I 
believe we can do this by building upon our strong public- and 
private-sector partnerships to substantially protect our 
homeland from the risks of disasters. I have enjoyed my 
meetings with both members and staff leading up to this 
hearing. If confirmed, it would be my hope to continue the 
exchange of ideas we have already begun.
    I appreciate the important role this Committee plays, not 
only in the passage of our governing legislation, but also in 
the counsel you offer to ensure the law reflects its highest 
intent and serves the best interests of our Nation. You provide 
an invaluable resource that I hope to avail the Federal 
Insurance and Mitigation Administration, as I carry out the 
duties of this new job.
    I am committed to the people's needs. Recently, while 
walking the streets of LaPlata, Maryland, I observed firsthand 
the tragic destruction and suffering left in the wake of the 
April 28 tornado. It reminded me of the absolute necessity to 
do the right things for the right reasons and at the right 
time. So many people in need depend on us.
    In an earlier disaster, I recall being told about a victim 
looking at her flooded home and ruined belongings and asking a 
simple but profound question: ``Why did they ever let people 
build here in the first place?'' Each level of Government must 
take stock in answering it. The programs of the Federal 
Insurance and Mitigation Administration are working and will 
continue to work with State and local governments to reduce 
future suffering and prevent losses in areas subject to 
hazards. As a Redmond City Planning Commissioner, many of these 
programs guided our development decisions to keep our community 
from harm's way.
    Mitigation and insurance--these are the two pillars of 
FIMA. They form the cornerstone of emergency management. 
Mitigation is a hard term to define, but I would suggest words 
do not adequately express actions that we see when we look at 
FIMA.
    Mitigation means building safer and smarter in areas prone 
to hazards. It means elevating new construction in flood plains 
above harm's reach, and in some cases, keeping buildings out of 
harm's way by not building in certain areas in the first place. 
Where mistakes have been made in the past, mitigation means 
removing buildings out of harm's way. It means retrofitting 
buildings in the flood plains and in the earthquake-prone areas 
to withstand future damage. It means designing and encouraging 
safe rooms in tornado alley.
    And knowing that our efforts cannot prevent all future 
damages from the forces of nature, we have insurance. We are, 
after all, east of Eden, and we know we will experience the 
inevitable upheavals of nature. So we have insurance to protect 
people from financial hardship and ruin after a natural 
disaster. Here, we can encourage all property owners to buy 
private-sector insurance to cover their losses from wind, fire, 
and hail. And because there is a gap in the private sector for 
flood coverage, Congress authorized the National Flood 
Insurance Program. Through the flood program, FIMA will 
continue to provide flood insurance protection to citizens who 
are at risk from water disasters. Mitigation and insurance--
they are the people's work.
    Last night, I read my daughter Ashton the story of Noah. In 
that story, God told Noah specifically how to build the Ark to 
ensure the survival of humanity. Mitigation and insurance are 
really God's work. It is an honor to be nominated to discharge 
these duties for the Nation. With the guidance of Congress, the 
support of States and the private sector, and the active 
involvement of communities, I believe, together, we can lead 
America to prepare for, prevent, respond to, and recover from 
disasters.
    Again, I thank the Committee and I appreciate your 
consideration, Mr. Chairman.
    Chairman Sarbanes. Thank you very much. We appreciate your 
thoughtful statement. I have a few questions I would like to 
ask you. First of all, I want to address FEMA's flood plain 
maps.
    Mr. Lowe. Yes.
    Chairman Sarbanes. Which I think everyone agrees are in 
serious need of modernization, since they are the maps that 
communities rely on in making decisions about building 
locations and the property owners rely on in determining 
whether to buy flood insurance. How important a priority do you 
think modernizing the FIMA's flood maps are?
    Mr. Lowe. For me and for the flood program, it is the 
number-one priority. And the reason why it is the number-one 
priority is because 25 million people use those maps every 
year. They are citizens. They are lenders. They are staff. They 
are banks. There are so many people who rely on those maps to 
make decisions.
    For the insurance program, ratings are set based on those 
maps. Two-thirds of those maps are older than 10 years, 
probably even older than 15 years, and we have about 2,500 
areas which are not mapped at all. And so, this leads to bad 
decisions.
    It also is the case now, post-September 11, that the detail 
that those maps provide can be useful in other areas. And I am 
speaking of, for example, homeland security. If we were to 
digitize those maps, as the President has called for with his 
request for $300 million in additional map funding, we would 
have an opportunity to update those maps and automate the 
entire process. So on a GIS technology platform, we could begin 
to add layers of detail which are helpful for many other 
purposes. And so, this is really a high priority, I believe, 
for the country.
    Chairman Sarbanes. We are encouraged that the President's 
budget calls for a significant increase in funding for flood 
map modernization. I have talked to Director Allbaugh about 
this.
    Of course, this is the first installment. It has to be 
followed by others if we are going to complete the job. And I 
think one of the very important responsibilities that you would 
have is, one, to work the money through the Congress, the money 
that is in the current budget. Two, then to make sure that 
there is money in the next budget. Then to work that through 
the Congress. And money in the subsequent budget, work that 
through the Congress. How long would it take us, moving at an 
intense pace, to get a full set of modern flood maps? Do you 
have any idea?
    Mr. Lowe. About 3 years. I think 2 to 3 years.
    Chairman Sarbanes. Yes.
    Mr. Lowe. That is working at a fairly good pace. And I 
think a lot of that depends on the decisions that are made 
today on the technologies that are used and the method that we 
go about mapping in the quickest and most efficient possible 
manner.
    Chairman Sarbanes. Well, I hope you will keep it as a very 
high priority. I think it would be a significant accomplishment 
if, under your tenure, we could end up with fully modernized 
flood maps. If remapping places more homes in the flood zone, 
how will people be notified about that?
    Mr. Lowe. The flood program works in cooperation with 
communities, with local community flood plain managers and the 
like. And so, modernization and digitization of these flood 
maps allows us to update the information so we, in fact, know 
who is where. Based upon that information FIMA would send a 
notice to those people so that they know where they are located 
in regards to the flood plain. The community at large including 
the flood plain manager and developers would also be involved 
in that process.
    Chairman Sarbanes. Right. I understand that many at-risk 
properties still remain uninsured. In fact, the President's 
budget establishes a goal of increasing the number of flood 
insurance policies in force by 5 percent in 2003. What actions 
do you have in mind to increase participation in the flood 
insurance program?
    Mr. Lowe. For the flood insurance program, that is a high 
priority as well. Obviously, we are not able to spread the risk 
and lower costs or even maintain them, unless we are able to 
increase policy growth. And so, there are a couple of things 
that need to happen.
    It is my understanding over the last period of time, 
perhaps a year or so, there has been a great deal of attention 
on this issue. And one of the things that has been found is 
that retention is a major problem. If we look at policy growth 
last year, it was 15 percent. So there is a 15 percent 
increase, about 600,000 policies, last year. But at the same 
time, there is also a loss of about 500,000 policies, if you 
will, out of the back end. And so, retention becomes a major 
issue.
    GAO is also working on a study now dealing with lender 
compliance. And it may, in fact, be the case that during the 
refinance period, literally, the computer system being used by 
the industry may be dropping out, inadvertently, people who 
should be insured and, in fact, by law, are required to be 
insured. So, if we can begin to fill that hole, that is 
helpful. But we also have to continue to educate people and 
deliver the message of the importance of prevention and 
insurance.
    Chairman Sarbanes. I am interested in those figures. Are 
there any surveys as to why people are dropping out? Can you 
pinpoint the factors?
    Mr. Lowe. I do not know if we know all the factors. I have 
asked this question and I know that the insurance staff has 
been working to try to figure it out. In fact, they have been 
meeting. They met last week with our private-sector partners, 
and I am sure part of those discussions were trying to 
understand with all of our stakeholders the real problems. I 
understand there is also a study on that which hopefully will 
be out soon. Internally, a working group has also been formed 
to figure out what all the causes are so that we can begin to 
address them.
    Chairman Sarbanes. I think the Committee would be 
interested in what your findings are----
    Mr. Lowe. We would be happy to share that information.
    Chairman Sarbanes. ----when you work through the study, as 
to the reason why you have such a significant number who have 
flood insurance and then drop it.
    Actually, as I understand it, flood insurance is required 
for property owners in a 100 year flood plain who hold a 
mortgage from a Federally regulated lending institution. The 
lenders are responsible for insuring that flood insurance is in 
place if it is required and the banking regulators are 
responsible for insuring that the lenders are carrying out 
their responsibility. Now, we have heard some concern about the 
level of compliance with these requirements. Do you have any 
view as yet about the level of compliance? And if so, what can 
FEMA do to improve compliance?
    Mr. Lowe. Yes. As I understand, Congress, in fact, has 
asked for a report on this. I know GAO is working on that 
report on lender compliance and I understand that that is 
supposed to be done at the end of May. I am not in a position 
to know as yet what those findings may be. I certainly have not 
seen any drafts. It is clear, though, that FIMA is not in a 
position, has no regulatory authority in that regard. So we are 
relying on lending regualators to really enforce those 
provisions. We want to work with them, to be helpful as we can. 
I am hopeful that I can begin to engage them if I am confirmed, 
so that there is closer coordination, so we all understand what 
we need to do and what needs to be accomplished.
    Chairman Sarbanes. Well, if these requirements are not 
being met, we really need to tighten that up. I would hope that 
that is something you could review in short order and see what 
can be done.
    Mr. Lowe. Certainly, Senator.
    Chairman Sarbanes. I wanted to ask about the relationship 
between subsidy reduction and mitigation activities. Properties 
that were built before a flood map was available for the 
properties' location pay a subsidized premium for flood 
insurance. There have been proposals made either to reduce or 
eliminate that subsidy.
    Now, the difficulty is if you reduce or eliminate the 
subsidy without increased mitigation funding, it could result 
in significantly higher premiums that would put a substantial 
burden on policyholders who may not be able to reduce their 
risk or move without substantial mitigation assistance from 
FEMA. Now these were properties that were there before we ever 
put the current framework into place, so they have always 
gotten, in a sense, a special treatment. But it is a 
recognition that they were there, in a sense, ahead of time. 
What is your view about this problem?
    Mr. Lowe. This is a serious issue. It has, in fact, been 
around for some time. But it is something that needs to be 
resolved. There are about 1.2 million insurance policies in the 
flood program that are subject to the subsidy that you referred 
to. We started out, I understand, with about 100,000 
historically, when the program was 
created, which was really kind of an agreement with local 
communities that we would subsidize those policies if we gained 
their participation in the management of the flood plain. Those 
policies pay between about 35 to 45 percent of the actuarial 
rate for flood insurance. So the subsidy is fairly high.
    As you know, the Administration has recommended in its 
budget to begin to reduce that subsidy on homes that are 
nonresidential, vacation homes and the like, over a period of 
time. Obviously, that is something that would have to occur by 
working with Congress and figuring out what such a time might 
be.
    There is an issue as it pertains, particularly to 
residential homes, perhaps a little less on vacation homes, as 
to the impact on renters who may be renting a vacation home as 
a permanent residence. And that is an issue that is perhaps not 
as much an insurance issue, but it is a housing issue and it is 
an issue that the director is concerned about.
    Currently, there is a report that is being prepared that 
deals with the demographics of people who would be subject to 
subsidy reduction and what the impact of that would be on HUD's 
programs. And so, the director is very concerned about that, as 
I am as well. This is something that we want to work with 
Congress on to make sure that we do the right thing by all who 
are involved.
    Chairman Sarbanes. Yes, this is a complex issue and we need 
to proceed in a very prudent way in addressing it. It needs to 
be addressed, but we could create lots of problems if we do not 
do it correctly. And we look forward to working with you on 
that.
    I want to ask you about the President's proposal to replace 
the post-disaster hazard mitigation grant program with a new 
$300 million competitive grant program for pre-disaster 
mitigation, as I understand it.
    Mr. Lowe. Right.
    Chairman Sarbanes. And this is in lieu of, rather than in 
addition to, or complementary to, as I understand it. The 
concern I have is that FEMA's post-disaster mitigation program, 
which has been its primary mitigation effort, took advantage of 
the window of opportunity that exists in the post-disaster 
environment, to get local cost-sharing on projects and, perhaps 
more importantly, to get a kind of motivation to undertake 
these mitigation activities. Now, with a pre-disaster program, 
would this opportunity to get mitigation activities undertaken 
be lost?
    I am in favor of doing pre-disaster mitigation so you do 
not have the disaster and the damage. On the other hand, I 
really prefer to see it as in addition thereto, so that we 
still have some money or commitment to do post-disaster 
mitigation, when localities and their constituents may be 
significantly more disposed to do something. And that is 
certainly been the experience in my State. We have found people 
much more willing to undertake significant mitigation efforts 
in the aftermath of a disaster. It is not exactly the best way 
to do it, but dealing with the human temperament, I do not know 
that we want to just close that aspect out and throw it all 
into pre-disaster mitigation. Do you have any thoughts on that?
    Mr. Lowe. Yes, I do. The budget did suggest that. The 
director has been clear on the record, in hearings, as well as 
with me directly, that he strongly believes that we need both, 
and there should be a balance. So that is my charge. In walking 
the streets of LaPlata and beginning to really look at how the 
community itself was coming together and people were helping 
each other to sift through the rubble and to begin to try to 
put their lives back together again, it was clear that there 
was a community of people who were ready to take some action to 
prevent this harm in the future.
    I have given your staff a little briefing packet on the 
damage at LaPlata. And when you look at that, what you begin to 
see is there are some fairly straightforward and, I would 
suggest, simple things that can be done to avoid substantial 
damage. But right now, there is an opportunity. The Hazard 
Mitigation Grant Program has been, as you know, made available 
to Maryland for mitigation activities, and I know that some 
folks from FIMA are in Maryland to begin to talk to 
communities, to people, homeowners, businesses, about some of 
the steps, particularly as it pertains to building 
construction, that can be taken to mitigate future harm. And 
so, this is exactly the balance that needs to occur.
    As you mentioned, for example, as it pertains to subsidy 
and repetitive loss properties, we are again talking about pre-
disaster. And again, those pre-disaster mitigation funds can be 
very helpful. So, again, that is an area where pre-disaster 
mitigation is important, as well as post-disaster mitigation.
    Chairman Sarbanes. Well, I do want to express our 
appreciation to you for moving quickly on the LaPlata 
situation. Obviously, I was there the day after and saw the 
extraordinary damage that was done. We know you are in there 
now working closely with them under the Mitigation Grant 
Program so that they undertake long-term hazard mitigation 
methods.
    These materials that you prepared, the LaPlata tornado 
damage survey and other materials, are extremely helpful. And 
we look forward to working very closely with you on this 
particular effort right now. The governor, of course, was there 
only yesterday and made a major commitment of State funds. And 
we have an opportunity to use this disaster to really help the 
community to come back. They have been badly battered and the 
fact that FEMA was in there very quickly was important in 
helping to boost people's attitudes about what the prospects 
are.
    But we do not want to let down on that effort. It is, of 
course, right at hand, so there is an opportunity, really, for 
people right in central headquarters to, as you did, actually 
get out there and see it, and also, to keep tabs on it. So, we 
may have a chance here to really show how this should be done, 
a kind of test-case example. I encourage you on the efforts.
    The other thing is, once you have been in the position for 
a while, we may want to come back and do an oversight hearing. 
I am not going to take the time this morning to look at the 
extent of the financial exposure that exists and to analyze 
that in terms of the coverage of the insurance in force, the 
premiums, the balances and so forth and so on. But that all, of 
course, also needs to be looked at.
    But we are anxious to get you on the job. I am hopeful I 
can get the Committee to move this nomination in the near 
future, over the next couple of weeks, I would hope, and so we 
can get you into place--well, hopefully, sometime this month. I 
would like to get that done, so you can forget about the 
confirmation process. You cannot forget about the Senate, but 
you can forget about the confirmation process.
    Mr. Lowe. We will not forget about the Senate. Thank you, 
Chairman Sarbanes.
    Chairman Sarbanes. And get on about your business.
    The hearing stands adjourned.
    Mr. Lowe. Thank you.
    [Whereupon, at 11 a.m., the nomination hearing was 
adjourned.]
    [Prepared statement, biographical sketch of the nominee, 
and response to written questions follow:]

                   PREPARED STATEMENT OF MIKE DeWINE
                 A U.S. Senator from the State of Ohio
                              May 8, 2002

    Mr. Chairman, I am pleased that this Committee is considering the 
nomination of Anthony S. Lowe for Administrator of the Federal 
Insurance and Mitigation Administration (FIMA), at FEMA. I welcome his 
wife, Angela; his daughters, Ashton and Ariana; his mother, Betty 
Harris; his brother, Reverend Paul Lowe; his mother-in-law, Barbara 
Barry; and her husband, Mohamadou.
    I would like to take a few moments to tell the Committee about 
Anthony's background and qualifications. In 1982, Anthony graduated cum 
laude from the University of Washington with a degree in international 
political science. He went on to receive his law degree from the 
University of Santa Clara in California, and he has studied law in 
Singapore and China.
    Prior to working for me, Anthony was a Land Planning Commissioner 
for the City of Redmond, Washington from 1994-1996. In this position, 
Anthony had an opportunity to apply many of the land use planning 
guidelines that are now administered by the Federal Insurance and 
Mitigation Administration. He served as my Senior Legislative Counsel 
on the Antitrust, Competition, and Business and Consumer Rights 
Subcommittee of the Judiciary Committee.
    Anthony possesses great integrity and has the professional 
background and executive skills necessary to get the job done. Because 
the FIMA Administrator must develop broad strategies and set policy, as 
well as persuade and coordinate with others at the highest levels, the 
success of its natural hazard risk reduction programs will rest on the 
ability of someone who can lead and forge relationships. That is 
precisely what Anthony Lowe will bring to this position.
    While working for me, Anthony spearheaded legislative initiatives 
on anticrime and counterterrorism technology, law enforcement 
assistance, and legal protections for the mentally ill and children. 
Among these legislative issues, one of the most notable laws enacted 
was the Crime Identification Technology Act of 1998, with its billion-
dollar authorization and its charge to assist State and local 
communities in their anticrime and counterterrorism technology 
programs. That law has helped set the tone for the application of 
technology in securing our borders against terrorism. It is also part 
of our effort to keep citizens out of harm's way in the event of a man-
made disaster.
    Anthony's Federal, State, and local government experiences also 
have given him a unique perspective to oversee the complex programs of 
the Federal Insurance and Mitigation Administration. Furthermore, 
because he has significant experience fashioning and implementing 
national programs, I know he appreciates the complex programs of FEMA--
the National Flood Insurance Program, the National Earthquake Hazards 
Reduction Program, and Dam Safety, among many others that actually are 
delivered at the local level.
    All of this demonstrates, Mr. Chairman, that Anthony Lowe is right 
for the job of Administrator of the FIMA. I am confident that he will 
bring the same leadership, the same personal and professional 
integrity, and the same determination to the position of Administrator. 
I wholeheartedly support his confirmation, and I encourage my 
colleagues to do the same.
                               ----------
                 PREPARED STATEMENT OF ANTHONY S. LOWE
           Administrator-Designate, the Federal Insurance and
                       Mitigation Administration
                  Federal Emergency Management Agency
                              May 8, 2002

    Chairman Sarbanes, Senator Gramm, and Members of the Committee, 
thank you for holding this hearing today on my nomination to be 
Administrator of the Federal Insurance and Mitigation Administration at 
the Federal Emergency Management Agency (FEMA). It is an honor to 
appear before this Committee.
    I would like to express my deep appreciation to President Bush for 
nominating me for this position, and to Director Joe Allbaugh for the 
trust and confidence he has shown in me. The Nation, particularly since 
September 11, recognizes the outstanding leadership of the President 
and Director Allbaugh, and it would be a privilege to serve alongside 
them.
    I want to thank Senator DeWine for his kind introductory remarks 
and for giving me an opportunity to serve the country as an attorney on 
his Judiciary Subcommittee. Senator DeWine, Former Senator Slade 
Gorton, the late Judge William L. Dwyer, the late Marian P. Diggs and 
Alice Warinner, have all taught me to strive for the public good, 
intellectual excellence, personal integrity, and then, to pass it on. 
Thank you.
    If confirmed, I would be the first Administrator for the newly 
realigned, Federal Insurance and Mitigation Administration. Last 
August, Director Allbaugh, as part of a major realignment within FEMA, 
brought together the Former Federal Insurance Administration and the 
Former Mitigation Directorate into a single organization, the Federal 
Insurance and Mitigation Administration (FIMA). All of the resources of 
the separate organizations are now merged under the new FIMA to form a 
cohesive unit to coordinate the delivery of the Nation's natural hazard 
reduction programs. These programs have been called the cornerstone of 
emergency management since they focus on the protection of life and 
property.
    As Administrator of FIMA, I would be an outspoken advocate for the 
Administration's mission to protect lives and reduce the loss of 
property from natural hazards. My vision is for the Federal Insurance 
and Mitigation Administration to become the premier all-hazard agency 
across the Federal Government. I believe we can do this by building 
upon our strong public- and private-sector partnerships to 
substantially protect our homeland from the risks of natural disasters.
    I have enjoyed my meetings with both Members and staff leading up 
to this hearing. If confirmed, it would be my hope to continue the 
exchange of ideas we have already begun. I appreciate the important 
role the authorizing Committee plays, not only in the passage of our 
governing legislation, but also in the counsel you offer to ensure the 
law reflects its highest intent and serves the best interests of our 
Nation. You provide an invaluable resource that I hope to avail the 
Federal Insurance and Mitigation Administration as I carry out the 
duties of my new job.
    I am committed to people's needs. Recently, while walking the 
streets of LaPlata, Maryland, I observed the tragic destruction and 
suffering left in the wake of the tornado, and it reminded me of the 
absolute necessity for me to do the right things, for the right 
reasons, and at the right time. So many people in need depend on us.
    In an earlier disaster, a victim was looking at her flooded home 
and ruined belongings when she asked a simple but profound question, 
``Why did they ever let people build here in the first place?'' Each 
level of Government must take stock in answering it. The programs of 
Federal Insurance and Mitigation Administration are working, and will 
continue to work with State and local governments to reduce future 
suffering and prevent losses in areas subject to hazards. As a Redmond 
City Planning Commissioner, many of these programs guided our 
development decisions to keep our community from harms way.
    Mitigation and insurance--these are the two pillars of FIMA that 
form the cornerstone of emergency management. Mitigation is a hard term 
to define but actions speak far louder than words. Mitigation means 
building safer and smarter in areas prone to natural hazards. It means 
elevating new construction in the flood plains above harm's reach, and, 
in some cases, keeping buildings out of harm's way by not building in 
certain areas in the first place. Where mistakes have been made in the 
past, mitigation means removing buildings out of harm's way. It means 
retrofitting buildings in the flood plains and in earthquake-prone 
areas to withstand future damage. It means designing and encouraging 
``safe'' rooms in tornado alley.
    And, knowing that our efforts cannot prevent all future damages 
from the forces of nature, we have insurance. We are, after all, east 
of Eden, and we know we will experience the inevitable upheavals of 
nature. So we have insurance to protect people from financial hardship 
and ruin after a natural disaster. Here, we can encourage all property 
owners to buy private-sector insurance to cover their losses from wind, 
fire, and hail. And because there is a gap in the private sector for 
flood coverage, Congress authorized the National Flood Insurance 
Program. Through the flood program, FIMA will continue to provide flood 
insurance protection to citizens who are at risk from water damage.
    Mitigation and insurance--they are the people's work. Last night, I 
read to my daughter Ashton, the story of Noah. In that story, God told 
Noah specifically how to build the Ark to ensure the survival of 
humanity. Mitigation and insurance are really God's work. It is an 
honor to be nominated to discharge these duties for the Nation. With 
the guidance of Congress, the support of States and the private sector, 
and the active involvement of communities, I believe together, we can 
lead America to prepare for, prevent, respond to, and recover from 
disasters.
    Again, thank you for the consideration you have given me today. I 
would be happy to answer your questions.









RESPONSE TO WRITTEN QUESTIONS OF SENATOR AKAKA FROM ANTHONY S. 
                              LOWE

Q.1. In the President's fiscal year 2002 budget request, the 
pre-disaster grant-based mitigation program was eliminated 
because it was deemed ineffective. This $25 million program was 
maintained in FEMA's fiscal year 2002 budget by Congress. In 
the President's fiscal year 2003 budget request, all disaster 
mitigation programs are consolidated into a $300 million pre-
disaster mitigation grant program. Each time the Administration 
has changed the disaster mitigation programs, those eliminated 
have been labeled ``ineffective'' by the Office of Management 
and Budget. How will the effectiveness and benefits of the 
mitigation programs be determined in the future?

A.1. The key to strengthening our mitigation programs and 
increasing effectiveness is to allow mitigation to be achieved 
in a more predictable manner. With more funding available on an 
annual basis, State and local governments would be in a better 
position to plan, establish, and implement their mitigation 
priorities.
    FEMA would collaborate with its State partners and other 
stakeholders to improve the programs, as well as to develop a 
fair, reasonable, and appropriate means for the competitive 
review and 
selection of grant proposals. For example, criteria would focus 
on quality of the proposed projects, ability of the project to 
address State and community mitigation priorities, and cost-
effectiveness. The competitive award of the grants should bring 
a greater emphasis to selecting projects that would offset the 
Federal costs of disasters, again leading to increased 
effectiveness and benefits of the Federal dollars expended for 
this purpose.
    In addition, we would plan to establish a project 
evaluation process to determine how well projects achieved 
mitigation goals. This effectiveness evaluation would help to 
better link resources to performance information for planning 
and reporting purposes, and would provide opportunities to 
identify and promote ``best practices.'' The effectiveness 
information also could be used in reviewing and adjusting 
evaluation criteria for future grant competition, as 
appropriate.

Q.2. The proposed mitigation program will be administered 
through a competitive grant process to award $300 million to 
States. How will the Federal Insurance and Mitigation 
Administration (FIMA) ensure public participation from State 
and local emergency managers and officials on the proposal?

A.2. FEMA's strategy will be to partner with the States and 
organizations representing local officials to involve them in a 
number of ways, collaborating to define the competitive grant 
program guidance and policy. FIMA will look for both formal and 
informal opportunities to ensure that collaboration takes 
place. For example, senior FEMA managers recently attended a 
meeting of the National Emergency Managers Association (NEMA), 
where we were able to obtain their thoughts and ideas regarding 
the implementation of the proposed program. In addition, we are 
planning to hold a listening session later this year to include 
other constituent organizations for both State and local 
officials.
    As the program is implemented, States would play a 
substantial role coordinating with their local communities to 
solicit, review, and prioritize grant applications. We 
anticipate establishing a board consisting of Federal, State, 
and local experts to conduct the final application review and 
selection. The competitive award of the grants should bring a 
greater emphasis to selecting projects nationwide that will 
offset the Federal costs of disasters. The States would 
continue to play an essential role in the implementation of all 
of FEMA mitigation grant programs, including providing 
technical assistance to communities. Finally, a project 
evaluation process would be established to determine how well 
projects achieve mitigation goals. States would play an active 
role in establishing this process, which would help to better 
link resources to performance information for planning and 
reporting purposes.

Q.3. The Disaster Mitigation Act of 2000 requires States and 
local communities to develop mitigation plans by November 2003 
in order to qualify for future mitigation funds. How will FIMA 
assist the States in developing plans and implementing this new 
requirement by November 2003? What resources will be necessary 
to provide this assistance?

A.3. To assist States and local communities (including tribes) 
in developing mitigation plans that meet the planning 
requirements of the Disaster Mitigation Act of 2000, Federal 
Insurance and Mitigation Administration will provide technical 
assistance in the form of how-to guides and as-needed 
individual help, and policy guidance and information to ensure 
consistent application of the require-
ments nationwide. In addition to providing technical assistance 
with the general planning provisions, FIMA will provide focused 
assistance with the risk assessment portion of the planning 
process by marshaling our resources in building sciences, loss 
estimation (using FIMA's Hazards U.S. (HAZUS) software), and 
multihazard mapping. State-focused risk assessment workshops 
are planned for early fiscal year 2003.
    Many tools and resources have already been developed and 
deployed. In April, FIMA conducted 10 regional workshops on the 
DMA planning requirements, where all States were in attendance. 
One How-To Guide was published in August 2001, and eight more 
are in development and/or production. A local mitigation 
planning workshop has been developed for the States to deliver 
to their 
localities.
    Over $20 million in Pre-Disaster Mitigation (PDM) grants 
will be made available to States and tribes in fiscal year 
2002, the bulk of which is being used by States to revamp 
existing planning programs to meet the new DMA requirements. 
The Administration has requested a significantly greater amount 
of PDM funding for fiscal year 2003, and while this funding can 
be used for a variety of mitigation initiatives, it is expected 
that at a minimum, a similar amount of funding will be 
available to support mitigation planning in the next fiscal 
year as well.

Q.4. Does the Administration's proposal to consolidate all 
disaster mitigation programs into a pre-disaster grant-based 
mitigation program make it easier to implement the Disaster 
Mitigation Act requirements? How so?

A.4. The Disaster Mitigation Act of 2000 provides a real 
incentive for communities to assess their risks, evaluate their 
vulnerabilities, and incorporate an action plan into the 
ongoing planning processes that many jurisdictions undertake 
already. With the recognition of the importance of mitigation 
planning, many communities will be better positioned to develop 
cost-effective proposals for mitigation projects and 
activities. Under the fiscal year 2003 budget proposal, 
communities would no longer be dependant on a disaster 
declaration in order to obtain a FEMA grant to protect their 
constituents, meaning that State and local governments would be 
in a much better position to plan, establish, and implement 
their mitigation priorities, thereby supporting the goals of 
the Disaster Mitigation Act of 2000.
    With the recognition of the importance of mitigation 
planning, many communities will be better positioned to develop 
cost-effective proposals for mitigation projects and 
activities. Awarding grants on a competitive basis will help to 
ensure that the most worthwhile, cost-beneficial projects 
receive funding. Funded activities will reduce the risks of 
future damage in hazard prone areas, thereby reducing the need 
for future disaster assistance. The development of State and 
local mitigation plans could be used as a focal point for 
coordination of Homeland Defense Community activities, as well 
as focusing on hazard mitigation and land use issues.
    Although we strongly support the proposed program, the 
Director and I also strongly believe that both pre-disaster and 
post-disaster mitigation funding is necessary, and that a 
balance needs to occur in the use of those programs and funds. 
In the immediate post-disaster environment, States, local 
communities, and citizens affected by disaster recognize the 
need for effective mitigation and are willing to take the steps 
necessary to remove themselves from harm's way and reduce or 
eliminate the losses and costs associated with future events. 
The infusion of funds made available following disasters have 
enabled critical mitigation work to be done. However, because 
the funds are tied to specific disaster events, implementation 
of long-range mitigation priorities established through a 
comprehensive planning process at the State and local community 
level is sometimes difficult to achieve. The current proposal 
for a pre-disaster mitigation program, providing consistent 
levels of funding from year to year, coupled with an 
appropriate post-disaster program or post-disaster funding 
would greatly assist in achieving those mitigation priorities.


                            NOMINATIONS OF:
                    CYNTHIA A. GLASSMAN, OF VIRGINIA
                                  AND
                        ROEL C. CAMPOS, OF TEXAS
                       TO BE MEMBERS OF THE U.S.
                   SECURITIES AND EXCHANGE COMMISSION

                              ----------                              


                         TUESDAY, JULY 23, 2002

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:05 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee), presiding.

         OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. This hearing will come to order.
    This morning, the Committee on Banking, Housing, and Urban 
Affairs meets to hold a hearing on the nominations of Cynthia 
A. Glassman and Roel C. Campos, to be Members of the Securities 
and Exchange Commission.
    The SEC as we are all very well aware, plays a vital role 
in protecting investors and promoting the integrity and 
efficiency of the securities markets. In recent months, the 
securities markets have experienced an erosion in public 
confidence. Investors have seen too many instances of faulty 
accounting, misleading stock recommen-
dations, unreliable auditor certifications, and inadequate 
issuer disclosures.
    The Congress is seeking to address these problems. Last 
Monday, the Senate passed, by a vote of 97 to 0, the Public 
Company Accountability Reform and Investor Protection Act, 
which came out of this Committee. And currently, the Senate and 
the House are in conference seeking to reach agreement on a 
bill to send to the President. The President has indicated that 
he would like to have a bill before the August recess of the 
Congress and I think many of us subscribe to that objective and 
that is what we are seeking to accomplish.
    The SEC is a pivotal actor in all of this, and its strong 
and effective actions to address these challenges could help to 
restore confidence in the markets and to increase their 
integrity.
    We meet this morning to consider two nominees whose 
appointment I believe would help to strengthen the Commission, 
and I welcome both of them before the Committee.
    Cynthia Glassman, who is a graduate of Wellesley College 
with a B.A. in economics, Wellesley has an enviable reputation 
for producing these economics graduates. They had this 
marvelous teacher there who has been featured in a number of 
articles over the years. Ms. Glassman is part of that coterie 
that went through that process.
    She also went on to the University of Pennsylvania to get 
an M.A. and a Ph.D. in economics. She then worked at the 
Federal Reserve Bank of Philadelphia. Then was an Economics 
Supervisor at the University of Cambridge in England. She came 
back and went to work for the Federal Reserve Board here in 
town, eventually rising to the position of Chief of the 
Financial Reports Section.
    She left the Fed and went into private activity, was a 
Senior Economist at Economists, Inc., and then for a decade 
worked at Furash & Company, a consulting firm serving the 
financial services industry, where she rose to the position of 
Managing Director.
    Before this nomination to the SEC, she had, for 5 years, 
worked at Ernst & Young, rising to the position of Principal in 
the Quantitative Economics and Statistics Group.
    Now, Ms. Glassman has been serving as a Commissioner since 
January of this year, having received a recess appointment from 
President Bush. She has also been on the boards of the Federal 
Reserve Board Credit Union, the National Economists Club, Women 
in Housing and Finance, a very active group with whom we have 
interacted, and they do a number of very good projects which I 
am personally familiar with, and also on the Commission on 
Savings and Investment in America.
    Roel Campos is a graduate from the U.S. Air Force Academy, 
from the UCLA Graduate School of Business with an MS degree, 
and from Harvard Law School with a J.D. degree.
    He served as an officer in the Air Force. He then practiced 
law in the private sector. He served as Assistant U.S. Attorney 
in the Central District of California from 1985 to 1989. And 
since 1995, he has been the Senior Vice President and Principal 
Owner of El Dorado Communications, a Houston, Texas radio 
broadcasting company.
    Mr. Campos has been active in the community in Houston, 
serving on a number of boards and commissions. And we welcome 
his appearance before the Committee today.
    With that, I yield to my colleagues.
    Senator Enzi.

              STATEMENT OF SENATOR MICHAEL B. ENZI

    Senator Enzi. Thank you, Mr. Chairman. I appreciate your 
willingness to have a hearing for these final two SEC nominees 
before the August recess. And it is my hope that we can move 
them through the Senate before we depart for the August recess.
    Chairman Sarbanes. It is my intention to try and schedule a 
Committee meeting, if not here, then off the floor while we are 
voting over the next day or two, to report them out. That would 
then get them on the calendar and that would give us all of 
next week to move them through. Of course, the calendar is 
being held up, as you know, by Senator McCain. But perhaps that 
will be worked out. There are a number of people backed up 
there.
    But if we can get them out of the Committee and get them 
positioned, then if that gate opens up, why, it is certainly my 
desire and hope that we can get these two nominees and the two 
we heard last week, which are the four Commissioners, all in 
place, confirmed with their terms and everything, and then we 
will have a fully functioning Commission.
    I have been telling the Administration from the beginning, 
that have as soon as they got all of these nominees up to us, 
we would do a hearing, and that is exactly what we are doing.
    Senator Enzi. Well, I appreciate your following through on 
that and the added emphasis to get it done by the August 
recess, if possible, because, as you have already mentioned in 
your statement, the Commission does need a full Commission for 
all of the weighty decisions that have been thrust on them and 
that we are about to thrust on them, so that they can do the 
most effective job possible.
    As we saw last Friday, the investor certainty is still 
extremely low. The Dow dropped nearly 400 points in a single 
day. So it is clear that investors do not know what is around 
the corner.
    I do not know that any of us know what is around the 
corner. I do not think that Washington passing legislation will 
calm all of those fears, but I do hope that the legislation 
will tell investors that corporate wrong-doers will have severe 
penalties and perhaps a jail cell waiting for them if they lie 
to shareholders.
    I believe the Commission has done a good job of handling 
the situation. Chairman Pitt and the Commission staff seem to 
have worked tirelessly to implement the important reforms to 
cleanse the climate of corruption. Most importantly, in an 
effort to conclude all of the restatements, they are requiring 
that the CEO's of the thousand largest companies to certify 
their companies' financial statements. From what I understand, 
all of these companies are working diligently to scrub their 
statements to ensure investors of their accuracy. This is the 
type of due diligence that we need.
    It seems that everybody is beginning to do their part. 
Companies are increasing stock buy-back plans. Corporate 
compensation packages are beginning to be reduced. And other 
market forces are correcting the corporate corruption. These 
initiatives will do more to restore confidence in the market 
than any legislative proposal developed by Congress.
    In addition, if the bill passed by the Congress does not 
provide adequate safeguards for the companies and their 
auditors, it will merely add to the uncertainty.
    I think the Commission will be well served having two 
individuals as qualified as these two nominees that we have 
before us today, and I am happy to assist in getting this 
process finished.
    I cannot impress on the two of you enough the 
responsibility that you are about to undertake, although I 
sense that you already know that. I applaud your willingness to 
come to the public sector and sacrifice your time and 
compensation to assist the country in renewing the faith in the 
markets.
    Again, Mr. Chairman, I appreciate your holding this hearing 
so we can move these nominees through the Senate. I hope that 
we can confirm them expeditiously and I look forward to working 
with you and the other Members of the Committee as we work to 
keep America's capital markets vibrant and the envy of the 
world.
    Thank you.
    Chairman Sarbanes. Thank you very much, Senator Enzi.
    Senator Akaka.

              COMMENTS OF SENATOR DANIEL K. AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. I am 
delighted to be here with you and my friend across the aisle, 
Senator Enzi, and to join you in welcoming our witnesses this 
morning, Mr. Roel Campos and Ms. Cynthia Glassman. And I thank 
you, Mr. Chairman, for telling us about their lives and where 
they are coming from.
    Also, I want to welcome your families. If you do not mind, 
Mr. Chairman, I would like to ask Mr. Campos and Ms. Glassman, 
in that order, to introduce your family to the Committee.
    Chairman Sarbanes. Please go ahead.
    Senator Akaka. Mr. Campos.
    Mr. Campos. Thank you, Senator. Please allow me to 
introduce my wife Mini, who is sitting right here behind me. 
Mini and I were high school sweethearts. She is my life's 
partner, my closest friend, and my wisest adviser. Mini is a 
graduate of Harvard Medical School and a practicing physician. 
We have been blessed with two sons, David and Daniel. David is 
16, Daniel is 12. Our sons bring us pride and joy every day of 
our lives.
    Senator Akaka. Do your sons happen to be here?
    Mr. Campos. My sons could not be here today.
    Senator Akaka. Thank you.
    Chairman Sarbanes. Ms. Campos, that was a very definitive 
statement of Mr. Campos' love and affection for you.
    [Laughter.]
    Senator Dodd. I think he read it, in fact.
    [Laughter.]
    Mr. Campos. I had to because I did not think I could 
remember it at all.
    [Laughter.]
    Chairman Sarbanes. Ms. Glassman.
    Ms. Glassman. Thank you very much. I would like to 
introduce my husband of 33 years, Len Glassman. He is sitting 
right behind me. He too is a physician. My mother-in-law, Mary 
Glassman, who has come down from Philadelphia for this hearing. 
My son, Ken, right here, who is at Goldman Sachs in New York. 
And his wife, who is also a doctor, Melissa Glassman.
    Chairman Sarbanes. Good.
    Ms. Glassman. They have come down from New York for this. 
Thank you.
    Chairman Sarbanes. We are very pleased to have you all 
here.
    Senator Akaka. Mr. Chairman, I am glad that we are moving 
on with Members for the Commission here because we know that 
the Securities and Exchange Commission, the Congress, and the 
country really are facing many great challenges. We need to 
fill the Commission with its Members. And this is because we 
are in the wake of incidents of misrepresentation of corporate 
fraud. The SEC will play a huge part in helping us bring back 
the confidence to our country and the industry.
    The SEC must have effective leadership. We are looking to 
both of you adding toward that, and in order for the Commission 
to meet these significant challenges.
    So, I want to wish you well. And hearing from the Chairman 
of your qualifications, there is no question you will certainly 
add to the Commission. And I would tell you at this point you 
have my support.
    Thank you very much, Mr. Chairman.
    Chairman Sarbanes. Thank you, Senator Akaka.
    Senator Allard.

                COMMENTS OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Mr. Chairman. I am just going to 
make a brief comment.
    I would like to welcome Ms. Glassman and Mr. Campos. I 
understand, Mr. Campos, you are a graduate of the Air Force 
Academy.
    Mr. Campos. Yes, sir.
    Senator Allard. So, you spent a little time in Colorado.
    Chairman Sarbanes. It was a wonderful experience, wasn't 
it, Mr. Campos, being there in Colorado?
    [Laughter.]
    Mr. Campos. It was outstanding.
    Senator Allard. And that prepared you for the battle that 
you are now going to enter into, I am sure.
    [Laughter.]
    Mr. Campos. Everything has been easy since then.
    [Laughter.]
    Senator Allard. Well, I would just like to join my 
colleagues in welcoming both of you to this Committee today. I 
want to thank you for you willingness to serve our country in 
your capacity as Members on the Securities and Exchange 
Commission.
    There has been a lot of attention media paid to the 
Securities and Exchange Commission in recent months. Here in 
this Committee, we have held a lot of hearings and crafted 
legislation involving the SEC as well.
    The Securities and Exchange Commission was created by 
Congress in 1934 to promote stability in the markets and to 
protect the investor. A great deal needs to be done at the SEC 
to restore its role as the investor's advocate. In the current 
environment, and in the midst of the loss of investor 
confidence in our markets, it is going to be particularly 
challenging.
    The SEC needs more resources in order to strengthen its 
enforcement authority, as well as more qualified personnel at 
the agency in order to play this role. Both of you have 
impressive and experienced backgrounds and I appreciate that, 
and I think you have your work cut out for you. I am sure that 
you will be working hard and I am looking forward to hearing 
your ideas about what we can do to improve investor confidence.
    Mr. Chairman, I look forward to hearing from the nominees.
    Chairman Sarbanes. Thank you, Senator Allard.
    Senator Dodd.

            STATEMENT OF SENATOR CHRISTOPHER J. DODD

    Senator Dodd. Well, thank you very much, Mr. Chairman.
    Let me join the Committee in welcoming both of you. I 
congratulate you on the nominations which you have received 
from the President. It is a high honor to be asked to serve. 
And all of us are deeply grateful to both of you for your 
willingness to serve.
    This is a challenging time. As someone said the other day 
when we were considering the nomination of another committee, 
that this is going to be a very difficult time at the SEC. That 
is true. But I also think it is a tremendously exciting time 
considering the challenges we face. And both of you bring a 
high degree of competency to these nominations. So, I look 
forward to voting for you and to also working with you.
    Just a couple of comments. Mr. Campos, I gave an address on 
Sunday morning at the National Council of La Raza in Miami at 
their annual convention. And you should know that there is a 
great deal of excitement within the Hispanic and Latino 
community over your nomination. They wanted me to convey that 
to you, how excited they are that you are going to be a member 
of the SEC.
    The only other thing that I would like to say to you is 
about the investor confidence issues that we talk about all the 
time. It is very important, and looking over your testimony, I 
think you understand that, both of you, very well.
    The point I made the other day is something that needs to 
be stressed. And that is the importance of retaining your 
independence. You have been asked by people to serve. Your 
names have been put forward by people in the political world. 
Your nominations are made by the President of the United 
States.
    Unlike other positions in the Cabinet, the 
Commissionerships of the SEC require a high degree of 
independence, not to get caught up in the day-to-day 
machinations of political agendas. That is not to say that you 
are unmindful of them, but just to be careful not to be drawn 
into the vortex of all of that, particularly in these days. I 
think it has always been true, but particularly now. And so, I 
would just say a word of caution as you begin this journey of 
serving in a very distinguished and important post in 
Washington, that you keep that in mind, if you could, during 
your tenure.
    With that, Mr. Chairman, I look forward to the testimony of 
our witnesses, and congratulations to both of you, and your 
families as well. This is a very exciting time for you.
    Chairman Sarbanes. Very good. Thank you, Senator Dodd.
    I say to the nominees, it is the practice of this Committee 
to swear in nominees at the outset of their hearing. So, I ask 
you to stand and take the oath.
    Do you swear or affirm that the testimony that you are 
about to give is the truth, the whole truth, and nothing but 
the truth, so help you God?
    Ms. Glassman. I do.
    Mr. Campos. I do.
    Chairman Sarbanes. Do you agree to appear and testify 
before any duly-constituted committee of the U.S. Senate?
    Mr. Campos. I do.
    Ms. Glassman. I do.
    Chairman Sarbanes. Thank you very much.
    Ms. Glassman, why don't we hear from you first, and then we 
will hear from Mr. Campos, and then we will go to questions.
    I will say to my colleagues and to the nominees, there is a 
vote scheduled at 10:45 a.m. So, that we will move as 
expeditiously as we can. But my guess is that we will probably 
have to recess for the vote and then come back.
    But we will proceed apace here and see how things unfold.
    Ms. Glassman.

         STATEMENT OF CYNTHIA A. GLASSMAN, OF VIRGINIA

                     TO BE A MEMBER OF THE

            U.S. SECURITIES AND EXCHANGE COMMISSION

    Ms. Glassman. Thank you, Chairman Sarbanes and the 
distinguished Members of this Committee.
    I am deeply honored to appear before you today to seek your 
approval of my nomination by President Bush to serve as a 
member of the Securities and Exchange Commission. If confirmed 
by the Senate, I look forward to continuing to fulfill the 
responsibilities of a SEC Commissioner along with my new 
colleagues.
    I am a Ph.D. economist with 30 years of experience 
analyzing financial services regulatory policy issues in the 
public and private sectors. I have worked at the Federal 
Reserve, two small consulting firms, a large accounting firm 
and, for the past 6 months, the SEC. Specific expertise that I 
bring to my responsibilities as a Commissioner includes risk 
management, competitive analysis, and financial reporting. I 
have also specialized in conducting analyses on the continuing 
relevance of a wide range of financial services regulations in 
a changed business environment.
    As an economist, I believe very strongly in letting markets 
work. Nevertheless, there is an important role for regulatory 
oversight to ensure that competition is fair, and that 
information provided to customers is clear, accurate, and 
complete. Regulations should create the right incentives to 
accomplish their goal, should be based on a good understanding 
of how the business works, and should not result in unintended 
consequences, either for the regulated companies or for their 
customers. In the current environment, the need for strong 
regulatory oversight could not be more apparent.
    When I was being considered for an appointment to the 
Commission last fall, I had identified several issues as 
important to the SEC's mission: Are the Depression-era rules 
under which the SEC operates still relevant? Is the regulatory 
process providing the right incentives, or is it resulting in 
unintended consequences? Is the securities market structure 
appropriate? Are investors receiving the information they need 
about domestic and global companies to make good investment 
decisions? Is investor education adequate for our complex 
financial markets?
    Recent events have shown how critical these issues are. 
Almost 6 months into my recess appointment as SEC Commissioner, 
I am outraged at the financial fraud, misleading information, 
and investor losses that have come to light. Given the 
extraordinary events of the last year, the Commission's number 
one job right now is to restore investor confidence in our 
markets and market participants. There is no question that 
companies must be held accountable, and individuals need to be 
held responsible, for adhering to both the letter and the 
spirit of the Federal securities laws. But the SEC, in 
partnership with Congress, the Administration and the States, 
must continue to be a driving force in assuring that we have 
the appropriate securities laws and rules and that we enforce 
them vigorously.
    I began my career in the public sector with the Federal 
Reserve System, and I am proud to return to public service as a 
Commissioner of the SEC. My 6 months of hands-on experience as 
a Commissioner have increased my respect for the agency and its 
entire staff and my appreciation of the challenges the 
Commission faces.
    Thank you, Mr. Chairman, Senator Gramm, and Members of this 
Committee for this opportunity. I would be happy to answer any 
questions that you have.
    Chairman Sarbanes. Thank you very much, Ms. Glassman.
    Mr. Campos, we would be happy to hear from you.

             STATEMENT OF ROEL C. CAMPOS, OF TEXAS

                     TO BE A MEMBER OF THE

            U.S. SECURITIES AND EXCHANGE COMMISSION

    Mr. Campos. Thank you, Mr. Chairman.
    Chairman Sarbanes, distinguished Members of this Committee, 
I cannot describe to you the sheer delight I feel today and the 
deep appreciation that I have for this opportunity to appear 
before you today. I am deeply honored to have been nominated to 
serve my country on the Securities and Exchange Commission.
    With your indulgence, I will very briefly share some of my 
life's experiences and perspectives, and then provide a few 
observations about the unique challenges facing the SEC.
    I am Mexican-American. My life's journey began in the small 
town of Harlingen, Texas, near the Mexican border in the 
southern tip of Texas. I was raised in a humble household, in 
which only Spanish was spoken. My father, who could not be here 
today, is 88 years old. Like many in his generation, my father 
had to drop out of school in the 6th grade to help on the 
family farm. Later, when his country needed him, my father 
volunteered and enlisted in the U.S. Army to serve in World War 
II. He was always proud that he volunteered and was not 
drafted. My father saw combat in Europe and was wounded in 
Germany and became partially disabled. During my childhood, my 
father often had three or four jobs at one time to make ends 
meet and to provide for our family. My brothers and I would 
often help my dad in doing construction or whatever extra job 
he had committed to do. He taught my brothers and sister that 
honest hard work was noble, that service to our country was 
honorable, and that education was the most valuable possession 
a person could have.
    My dad had a simple version of the American Dream. He 
believed that hard work and sacrifice would produce better 
opportunities for his children and permit him to live with 
dignity in his old age. Like millions of Americans today, my 
dad today is retired and lives on his savings, Social Security, 
and pension benefits. The series of recent business scandals 
and the resulting crisis of confidence in our financial markets 
threatens the future of my father, as well as millions of 
retirees in America. In my hometown of Houston, Texas, I have 
seen neighbors, who had worked for years for a certain major 
company that has been the subject of investigation, suddenly 
and without warning, be without a job, without meaningful 
severance, and with their retirement accounts wiped out. I 
worry, that inevitably, these corporate abuses may create a 
separate crisis of confidence and that the American public will 
come to question whether the American Dream has become an 
illusion. If I am confirmed, I pledged to work tirelessly with 
you and my colleagues at the SEC to restore the faith of the 
public in the integrity of our financial markets.
    I have been blessed during my life to have had the 
opportunity to pursue higher education and to serve my country. 
As you know, apart from my military service, I was a Federal 
prosecutor in Los Angeles. I investigated, tried, and convicted 
Members of major criminal enterprises and sent them to jail. I 
am informed that if the Senate chooses to confirm me, I will be 
the first person to serve as an SEC Commissioner with a law 
enforcement background. If confirmed, I will bring my 
experience and accept the heavy responsibility to fairly and 
carefully judge and determine the appropriate enforcement 
action and sanctions in the many pending and future SEC 
investigations.
    As you also know, I have spent about 16 years in private 
legal practice as a corporate transactions lawyer and as a 
corporate litigation and trial attorney. For the past few 
years, I have been an executive and part owner of a small 
private company. If confirmed, I will bring to the Commission 
my experience in having dealt with the challenges of building 
and operating a company in the private sector. One of the 
missions of the SEC that I will embrace if confirmed is to 
promote an environment in which small, entrepreneurial, and 
emerging companies can raise capital efficiently. As we all 
know, small and emerging companies will produce much of the 
Nation's future economic growth, creating a large share of 
tomorrow's new jobs and innovation, and such companies will 
help to validate the American Dream. Over the years, the SEC 
together with the able oversight of this Committee has earned 
universal 
respect and admiration. If confirmed, I promise to use all of 
my God-given abilities to uphold the SEC's legacy of exercising 
fair and tough-minded regulatory authority.
    The Senate last week took a historic and courageous step in 
restoring the public's confidence in the financial markets by 
passing the Public Company Accounting Reform and Investor 
Protection Act of 2002. I, along with the rest of the Nation, 
are in your debt Chairman Sarbanes for the crucial role that 
you and this Committee played in bringing about this 
legislation. If I am honored by being confirmed, I look forward 
with great anticipation to working with you Mr. Chairman, with 
Senator Gramm, with the distinguished Members of this 
Committee, and with Chairman Pitt, and my fellow Commissioners, 
and the talented staff at the SEC. There is much work to be 
done. However, I believe that we can together succeed and ably 
discharge our sacred trust and our obligations to the American 
people.
    Thank you for this opportunity to appear before you today. 
I will do my best with any questions that you may have.
    Chairman Sarbanes. Thank you very much, Mr. Campos.
    We have been joined by Senator Corzine. Jon, do you have an 
opening statement that you would like to make?

               COMMENT OF SENATOR JON S. CORZINE

    Senator Corzine. No, other than to welcome the nominees and 
I appreciate the fact that we are moving rapidly with this.
    Thank you.
    Chairman Sarbanes. Since there is this vote and I have to 
be here at the beginning and at the end as the Chairman, if 
there are colleagues of mine who, because of their schedule, 
feel they will not be able to return after the vote, I would be 
happy to yield to them now to try to get their questioning in 
because I know some will leave to go to the vote and will not 
be able to come back.
    Senator Dodd. I think we are okay. We have 25 minutes.
    Chairman Sarbanes. Very good. Let me ask, first of all, 
because I am prompted by a story that is in the paper today: 
SEC Union Workers Reach Accord On Work Rules.
    ``After 532 days of negotiations, the SEC and its union 
employees agreed to a contract that will allow workers to 
telecommute 2 days a week, among other provisions. The 
agreement still needs approval by the union Members and SEC 
Chairman Pitt addresses basic working conditions.''
    And it goes on to describe that. Of course, the fact that 
they have been at it for 532 days, a year and a half, is in 
itself not a very good comment. But I am hopeful that this 
agreement will be approved and the SEC will be able to get its 
labor/management relations back on track.
    Now one of the issues that was not addressed in this 
agreement, but is very important, concerns pay. Earlier this 
year, Chairman Pitt distributed $25 million in raises without 
union involvement, according to this article, which sparked a 
demonstration in front of the SEC's Washington headquarters. 
Union workers carried signs mocking the pay raises as a ``Pitt-
ance.''
    Our bill significantly increases the authorization for the 
SEC. It takes it up to $776 million.
    The Senate Appropriations Committee, the Subcommittee that 
deals with the SEC budget, has put in $750 million in the 
budget for the year beginning October 1. And when we took it 
up, we said that there are three things that we thought the 
Commission really needed to do with this money.
    One was pay parity in all respects, both salary and 
benefits. Two was upgrading the technical systems, the 
computers and so forth. Three--and this was something that 
Senator Dodd and Senator Corzine had been pushing--well, they 
had been pushing the whole thing strongly, but additional 
accountants and examiners. In other words, to boost up the 
staff.
    I am just interested in how important you think an enhanced 
budget is for the SEC, how strongly you will fight for it? And 
on that, I make the observation, if the Chairman of the SEC 
Commissioners does not fight for the budget, I do not know who 
will. And how important you think this infusion of resources is 
to the ability of the SEC to do its job?
    Why don't I go to you first, Ms. Glassman. You have been 
down there now about 6 months, I guess.
    Ms. Glassman. Right, I have been there 6 months, and I 
could not agree more that we need more money.
    We desperately need more people. You mentioned the lawyers, 
the accountants. Don't forget the economists. We need more of 
those as well.
    [Laughter.]
    Chairman Sarbanes. I apologize to the economists.
    [Laughter.]
    Mr. Campos. Commissioners?
    [Laughter.]
    Ms. Glassman. We need technology. We need vastly improved 
technology. And pay parity will go a long way to helping our 
retention efforts. Our retention is much worse than our sister 
agencies, the banking agencies. Part of the reason is, or 
probably most of the reason is, they are paid better than we 
are. Pay parity will bring us up to those levels.
    The simple answer is, yes, we need the money. We will use 
it. You know the Chairman has a special study, apparently the 
first of its kind, to evaluate how we are currently using our 
resources. The results of that study will help us allocate the 
new resources appropriately and efficiently. But I know we need 
them.
    Chairman Sarbanes. The GAO actually, at our request, did a 
study on the pay parity issue and the turnover at the SEC. And 
the comparison with the other financial regulatory agencies is 
quite marked in terms of retention. Generally, the cause is 
perceived to be that they have the pay parity and the SEC does 
not.
    Mr. Campos.
    Mr. Campos. Senator, you could not be more correct in 
pointing out that the resources are absolutely essential. The 
SEC and its people are dedicated, hard-working, but they need 
more resources. We need more people, enforcement, simple things 
like trial technology to be able to bring these enforcement 
actions, are desperately needed. More capable lawyers who can 
bring these complicated cases.
    Keep in mind that trying a case that involves financial 
fraud is a very complicated endeavor. You need not just bodies, 
but people who have the experience, people who have the 
capability to present a case effectively and successfully in 
court and to obtain the correct results.
    Parity, without question, has to happen, must happen, and 
is needed. And the staff at the SEC expects it, and I assume 
that is a given. The budget that has been thrown out is fair 
and every one of those dollars can be used well by the SEC.
    Chairman Sarbanes. Good. My time is expired.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman.
    Senator Dodd is the Chairman and I am the Ranking Member on 
the Securities Subcommittee of the Banking Committee. One of 
the things that we were looking at when we first got these jobs 
is doing a review of all of the securities laws, doing a 
complete review. I would be interested in both of your opinions 
on whether we should do that.
    Ms. Glassman. I will go first. The laws are 70 years old. 
And so, I think a review is warranted, although the environment 
being what it is right now, in terms of priorities, it may not 
be timely to do this right now.
    But I do agree that it is important, and it ties in with 
something that Chairman Pitt has asked me to do, which is to 
oversee a review of all of our regulations, to make sure that 
they are efficient and effective in the current environment, 
given all the changes in the markets and technology.
    I have started the process. We are beginning that review. 
One of the potential outcomes of the review is, on certain 
regulations, we will determine that there might be a need for 
legislative change.
    So, I would look forward to working with the Committee, if 
you are doing a law review as we do our regulation review, to 
coordinate and get them both done together.
    Senator Enzi. Thank you.
    Mr. Campos, any comments?
    Mr. Campos. I agree generally, Senator Enzi. I believe that 
is a worthwhile endeavor. The laws are 70, 80 years old.
    Nonetheless, the basic premise of the law for Federal 
securities regulation is material information disclosure. It is 
not merit-based, which some States still have. So the essence 
of the way our securities laws work still seems to me to be a 
fairly ingenious creation and allows it to be a live set of 
laws which, through rulemaking and through the various efforts 
that this Committee and the Congress have done, have allowed it 
to be very flexible and to keep up with the demands of 
technology and the changes in the economy.
    Senator Enzi. Thank you.
    Do either of you have a position on the existing Nasdaq 
exchange application?
    Ms. Glassman. The issues are extremely complex. Balancing 
the evolving market structure with the more traditional market 
structure is taking a lot of thoughtful review by the staff and 
ultimately, by the Commissioners. As I said, I think all of the 
market structure needs to be looked at in a comprehensive way. 
That application has to be part of that comprehensive 
framework.
    Mr. Campos. I believe it is a great testament that we are 
looking at fundamental changes that would work here. It is a 
very complex issue with many sides and many views. The SEC 
staff has been working very diligently on coming up with their 
positions and providing information back to this Committee and 
others who requested it. I have an open mind and I believe in 
general that the fundamental changes will be positive.
    Senator Enzi. Thank you. I will yield the rest of my time.
    Chairman Sarbanes. Thank you.
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    I want to commend the Chairman for all of his work on the 
bill that we just passed. It was so outstanding to have 97 of 
our colleagues vote for a bill that was crafted by the Chairman 
and Members of this Committee. That bill will be helpful in 
what you both will be doing.
    I have a special interest in financial education along with 
several of my colleagues on this Committee. After your recess 
appointment, Ms. Glassman, in January, you have had several 
months to become familiar with the agency. As you know, the SEC 
works with public organizations to foster educational programs 
and provides neutral information about saving and investing. 
What is your evaluation of the SEC's current efforts to educate 
the public about investing and what should be done to enhance 
these programs?
    Ms. Glassman. I share your interest in investor education. 
It is critical to making sure that investors make wise 
decisions. As an economist, I think it is important that 
markets have the information that is fair and clear, but also 
that the investors have the knowledge to understand that 
information. So as I said, investor education is critical.
    Our investor education group is terrific. They are so 
enthusiastic and they are so good. Since I have been there, we 
have had our forums for corporate governance and accounting 
oversight. We have had an investor summit. Our investor 
education group has put on a program in Norfolk, along with the 
military, for specific help in investor education. We have 
wonderful brochures. We have a great website. We had a terrific 
scam. I do not know if you read about it, but it was a scam on 
the Internet in which people were told about this wonderful new 
investment and, if they clicked through, ultimately, it was one 
of those too-good-to-be-true investments, which of course it 
was. If they clicked through to the end, they got a notice that 
said, if you were willing to put your money in this, you have 
made a big mistake, essentially, and provided some information. 
So, as I said, I think our programs are good.
    However, there is a lot more to do. I have seen the 
statistics on financial literacy in the high schools, and for 
adults, and they are abysmal. We really need more investor 
education in the schools, through the work place, wherever 
people will listen, especially for retirees because they are 
the ones who now have lump sums of money to put in our markets 
that have gotten more complex.
    In my own small way, I have worked on this issue. I am on 
the board of a preschool and child care center for low-income 
families and I have helped with financial literacy programs 
there. I just think it is critical, and we all need to work 
together to improve it.
    Senator Akaka. Thank you for that response.
    Mr. Campos, I will ask you the same question. What are your 
thoughts on the issue of financial education?
    Mr. Campos. I think it is extremely important, Senator.
    We have a system in place here in America, the greatest 
marketplace in the world, the envy of the world. And yet, most 
Americans do not understand how stock prices work. They do not 
understand that they can lose money. Most Americans cannot read 
a financial statement. They do not understand what a balance 
statement is.
    It is extremely important that our public gets educated. 
And in this way, more Americans will eventually be able to 
participate in the capital and the wealth creation that our 
system provides.
    It is extremely difficult. I commend you for that goal. It 
is extremely difficult to execute it. There are so many 
different areas that have responsibility here. I would like to 
see something in the high schools that the SEC and other 
agencies could participate in in some way that is an 
appropriate use of the taxpayers' money.
    But high school students need to know simple ABC's of 
finances. They need to know how to use credit cards. They need 
to know that they can run out of money in their checkbooks. 
Simple things like that are so crucial.
    I agree with you. I feel strongly about that issue. If this 
Senate honors me by giving me the confirmation, that will be 
one of my areas of great interest at the SEC.
    Senator Akaka. Well, I thank you for your responses. I feel 
that having people understand how things work will play an 
important part in restoring public confidence in the financial 
markets. I commend you for it.
    Mr. Chairman, my time is up. Thank you very much.
    Chairman Sarbanes. Thank you very much, Senator Akaka.
    I would just note that this Committee has taken an active 
interest in financial education. We held a couple of hearings, 
including one with Chairman Pitt, Chairman Greenspan, and 
Secretary O'Neill. And Members of this Committee have been very 
active.
    Senator Enzi, when he was in the State Senate in Wyoming, 
was instrumental in putting in place important provisions at 
the State level with respect to financial education. And he has 
sustained that interest here. Both Senator Akaka and Senator 
Corzine have taken a number of initiatives, and of course, 
Senator Dodd and Senator Allard and myself all remain 
interested.
    So, we look forward to interacting with both of you. This 
is not a front-burner issue, so to speak. But in the total 
picture, it is quite important and it could make a significant 
difference.
    The fact is we have a lot of financially illiterate people, 
but who have some money and they are caught up. They are being 
scammed, as it were, left and right. We need to work at 
addressing that.
    Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    The Chairman made the statement that you will have 
additional resources coming your way, and that will be by way 
of dollars, primarily. I agree that you need to have additional 
resources. Have you given any thought on what you are going to 
do to focus your mission, how you are going to direct these 
additional resources in order to more clearly be able to 
accomplish the mission of the Securities and Exchange 
Commission?
    Ms. Glassman. At this point, I think we all have our own 
views. Assuming confirmation goes forward, we will have four 
new Commissioners.
    Senator Allard. Would you like to share with me some of 
your views?
    Ms. Glassman. My personal views? The highest priority in 
the short term is more enforcement staff. We are really 
stretched to the limit. The enforcement people are stretched to 
the limit as are the accountants, in the current environment. 
So staffing is obviously critical. And pay parity. That is a 
given.
    I also think we really need improved technology. If we had 
better technology, for example, to better prioritize our 
reviews of the filings, from the perspective of which are the 
ones that are most likely to be a problem, that would free up 
resources and allow us to leverage better what we have. So 
improved technology is very important.
    Regarding the specific systems, I am not a technology 
expert, but I know there are a number of areas where our 
technology is pretty obsolete and we really do need more state 
of the art technologies. That would be one of my highest 
priorities.
    Senator Allard. Mr. Campos.
    Mr. Campos. Senator, I believe that, as all of the Members 
have mentioned in their remarks, the lack of public confidence 
issue is so large right now. The swiftest way to promote that 
is through 
effective enforcement.
    To use a very simple analogy which is not perfectly 
appropriate, but you need more cops on the beat, essentially, 
to do the work and to do it well. And I think that has great 
significance.
    People fear there will be over-enforcement, I do not 
believe in those fears. The dedication, the integrity, the 
professionalism of the people who will be doing the enforcement 
is paramount. And the effort there to deal with all of the 
different problems arising right now, we need to work through 
that backlog.
    So that I think is the foremost use. All of the divisions 
have very important missions and all of that would be something 
that would obviously be presented and carefully thought about 
at the Commission, with the full Commission.
    Priorities are just like managing any limited resources in 
any company. We will make decisions and we will share them with 
this Committee and anyone else who is interested, and pursue 
it.
    Senator Allard. Both of you have mentioned enforcement is 
an important part of where we need to focus our additional 
resources. What do you see as the biggest challenges to 
strengthening enforcement?
    Ms. Glassman. Right now it is pay and it is positions. We 
have a terrific staff. The enforcement group does a wonderful 
job. Our litigators are really strong. But because of our 
budget constraints, we have been losing the really important 
middle management layer. That is the layer that we have to 
recruit from the private sector because we need people with the 
experience.
    So the challenge is the pay and the budget. I think people 
want to work for the SEC. I have met a huge number of the 
staff. I have tried to meet all of them over the 6 months that 
I have been there, and have found them to be really dedicated.
    People on the outside also want to work for us, so if we 
can pay them and if we can get past our budget constraints, 
then I think we will get the people we need. But we really need 
good people.
    Senator Allard. Now what is the problem there? Do we have 
people coming in and getting on the SEC staff and it is a 
career-builder? And then they see that there are other 
opportunities open to them in the corporate world because they 
are on the SEC staff ? What is happening there?
    Ms. Glassman. I think, as in any Government agency, that is 
part of it. You get the Government experience and go to the 
private sector, although a number of people have come back. 
They have gone to the private sector and come back to the SEC. 
But I think some of it is just the pay. It is difficult, given 
the opportunity cost at the other agencies, as well as in the 
private sector. There is a limit to how long people can stay 
within our pay ranges and raise a family and pay for education 
and all of those other things that they have to look forward to 
with children.
    Senator Allard. Mr. Chairman, thank you.
    Chairman Sarbanes. Thank you, Senator Allard.
    Senator Dodd.
    Senator Dodd. Thank you, Mr. Chairman. Again, my 
congratulations to both of you.
    A couple of things. First, I appreciate Senator Enzi 
bringing up the potential of some hearings on the Securities 
Subcommittee looking at all the rules. But I also take, Ms. 
Glassman, your points. I think right now we should just try and 
get the accounting reform bill done before we start having a 
large-scale revision. I do not want to frighten the markets if 
we are going to start rewriting the rules here altogether.
    [Laughter.]
    But it is something that we should look at and I appreciate 
both your comments on that.
    Second, let me underscore something that Senator Sarbanes 
said, and that is about the reports this morning on the labor 
issues. I am not going to ask you to comment on this, but I 
will just make the statement myself and urge you, as two people 
who will be at the Commission, to see if we cannot resolve 
these labor issues.
    This does not help in the midst of everything else, in 
light of your responses to Senator Allard's questions regarding 
the major issues down there with pay and longevity, retention, 
and so forth. Labor issues do not help that matter when you are 
trying to track good people if it looks as though this is a 
place where people do not get along between management and the 
workforce. So it is going to be critically important that those 
issues be resolved. And I do not know whose responsibility that 
solely is, but I suspect the Commissioners can play a role 
here. I would urge you to do so.
    You both have remarkable backgrounds and extensive 
experience. And there has been lately this notion of what 
someone described, I cannot recall who said it, but guilt by 
occupation, in a sense, and I speak of the accounting 
profession, Ms. Glassman.
    I have great respect for those people. I know there are 
others who feel this way. I certainly believe that Arthur 
Andersen should have been brought on the carpet. I am not sure 
92,000 people should have lost their jobs worldwide. And I am 
waiting for someone at Enron to get a parking ticket. I hope 
they do in all of this.
    But I would like you to comment about the accounting 
profession. What needs to be done? It has been a little 
disconcerting for those of us up here who helped craft this 
legislation that we now have before us, that so many leaders of 
the accounting profession were so adamantly opposed to this 
bill. Now many of them I think are coming around a bit. But it 
did not help, it seems, when we were trying to initiate some 
reforms in this area, to have an accounting profession be so 
adamantly opposed to what we were trying to do.
    I wonder if you might just share with us some of your own 
thoughts on what you think needs to be done to get this 
critically important profession back on its feet again, in a 
sense, at least the perception of it. And I wonder if you might 
also just comment on what you think of this bill, the 
accounting reform bill. I am going to ask both of you to talk 
about it, to give us your general thoughts of what you think of 
this legislation.
    Ms. Glassman. I am very supportive of the legislation. I 
think it accomplishes a number of goals that I personally think 
are critical for the accounting industry.
    Senator Dodd. Can you speak up just a little? I apologize 
for the microphones.
    Chairman Sarbanes. Just pull the microphone close to you.
    Ms. Glassman. Is that better?
    Senator Dodd. Yes.
    Chairman Sarbanes. Even closer.
    Ms. Glassman. The accounting industry needs better 
oversight, both substantively and in terms of perception. This 
bill provides a lot of the elements of the oversight that are 
important. I think the oversight has to be independent of the 
profession, and the way the board is set up in the bill 
accomplishes that. The funding has to be independent. It cannot 
rely on the profession. And the bill does that as well.
    The reviews have to have a dedicated staff so that it is 
not the accounting firms reviewing each other, at least not as 
the leaders of the reviews. I am not quite sure how the 
staffing is going to work on the reviews, but they need to be 
led by people who are not at the firms.
    Those are some of the critical issues. Also, the reviews 
need to be timely. At least for the larger firms, the reviews 
need to be every year, which is in the bill.
    Those things are critically important and I think it is 
unfortunate that the accounting firms are lobbying you. 
Hopefully, they will see that this is beneficial for them 
because the markets need to have confidence in the accounting 
firms, as well as in the companies themselves.
    Senator Dodd. Exactly. Well, what needs to be done by the 
firms themselves, just the internal structuring? Is there 
something going on in the structure of accounting firms that is 
creating this kind of problem that is giving the public this 
perception that seal that you guys give all the time that we 
have relied on for so many years is now raising doubts about 
whether or not that seal is a good seal?
    Ms. Glassman. The firms themselves have to look at the way 
they compensate people, how they incent people, and to make 
sure that they are not creating conflicts within their own 
partnership.
    Senator Dodd. Someone said to me that a lot of the problems 
arose here when this consulting function became the leader 
rather than the audit function. And the divisions within these 
businesses between the auditing/consulting function raised an 
awful lot of the problems that we have seen in the last few 
months. What do you think of that opinion?
    Ms. Glassman. There appears to be some truth to that. 
However, there are some good reasons to have certain consulting 
functions at the accounting firms because of the specific 
expertise that they bring. I am not an accountant. I am an 
economist.
    Senator Dodd. I know that.
    Ms. Glassman. And so, I never actually participated in an 
audit. There are some areas of expertise that the consulting or 
advisory functions bring to the audit. There are some that are 
not critical and may cause some conflicts. I think it is 
important for the firms and the oversight board to sort those 
out and create the right incentives, both internally and 
externally.
    Senator Dodd. Mr. Campos, quick answer on the bill. What do 
you think of the bill?
    Mr. Campos. I think that the bill is a tremendous piece of 
work. It is almost revolutionary to get this enacted at this 
particular time. It does exactly what Commissioner Glassman is 
referring to. It creates an oversight board. It provides 
crucially a requirement of independence.
    I believe that the consulting that is prohibited is right 
on the money. If the audit function requires expertise, then, 
ultimately, the audit function will charge more for its 
services. And its services are crucial for confidence in 
financial statements.
    So it is worth more money. That is the simple fact. And 
just an observation: I think anybody who is in business has 
difficulty changing. This essentially is tough love in terms of 
this legislation. No one is against accountants. But they serve 
a very unique function under our system. This bill will require 
firms to do business differently. But they do not have to 
eliminate consulting. They just cannot do it for the same 
company they are auditing.
    Senator Dodd. Thank you both.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you, Senator Dodd.
    Senator Gramm.

                STATEMENT OF SENATOR PHIL GRAMM

    Senator Gramm. Mr. Chairman, thank you very much.
    I was down at Judiciary to introduce Priscilla Owen. By the 
way, I thought every committee of the Congress introduced the 
visiting Members first and let them speak. We do it right. 
Judiciary lets those on the committee speak. I hoped to be back 
up here quickly.
    Chairman Sarbanes. They probably saw it as an opportunity 
to lecture you this morning.
    Senator Gramm. Yes. Well, it was like many lectures I have 
heard. People used to say that they were worried about college 
professors indoctrinating. And I used to say, if they are no 
better at indoctrinating than they are at teaching, they are 
not dangerous.
    [Laughter.]
    I have had an opportunity to visit with both of our 
nominees. I think that they are both excellent people. I intend 
to support them. I would just like to give a little lecture of 
my own.
    [Laughter.]
    And that is that you are going into an independent agency 
at a time when there is going to be tremendous criticism. We 
probably have a Chairman who is as qualified as anyone who has 
ever been Chairman and who has probably the most distinguished 
background of anyone who has ever been Chairman. And who was 
confirmed unanimously. And now people line up to denounce him, 
I guess because by doing so, you get your name in the paper. 
And if you want to be quoted, you have to be more extreme than 
the last guy who made the statement.
    But in any case, my concern, and I just leave it with you 
since I have already decided to vote for both of you, is that 
with all of this criticism coming from outside the Commission, 
there is going to be this real tendency to have divisions in 
the Commission and to try to show those divisions publicly, as 
people take this criticism personally.
    There is something to be said in working in a collegial 
body. We have a Senator here, Senator Byrd, who tries to remind 
us of our responsibility to the institution. We do not always 
listen to the lectures, but they are always right. I just want 
to encourage both of you as Members of the Commission to 
realize it is not personal. Many of these criticisms have no 
purpose other than promoting the ends of the criticizer.
    In expressing and working for what you think is right 
within the Commission, I hope that both of you will do it in a 
constructive way. If there is ever been a time where we need a 
Commission that works together and that really proves that an 
independent agency can embody people from very different 
backgrounds with very different opinions and yet be effective, 
I think that time is now.
    So, I want to commend both of you to basically realize, to 
explain to your children that you are really not as bad as they 
are going to read in the paper.
    [Laughter.]
    Then go on about your business doing a good job. Remember 
the old Lincoln adage. Everybody was criticizing Lincoln. He 
had the best response I have ever heard. He said that if I 
spent my time trying to defend myself against these criticisms, 
I would never get anything done. And in the end, if the critics 
prove right, having a league of angels swear I was right will 
make no difference. If you do a good job, in the end, people 
will note it and they will appreciate it.
    Finally, let me just thank both of you for your willingness 
to serve. One of the things that I have always been impressed 
by in sitting on this Committee is I know there are people out 
there who think everybody has some kind of angle and that they 
are all doing this for some promotion of their own individual 
interest. I am continually struck by people who are willing to 
make great sacrifices to serve the greatest country in the 
history of the world. It is a country that deserves being 
served, and I appreciate both of you being willing to serve in 
this important agency at a very critical time.
    And so, I am proud to support both of you, and I thank you, 
Mr. Chairman.
    Chairman Sarbanes. Thank you, Senator Gramm.
    Ms. Glassman. Thank you.
    Chairman Sarbanes. Senator Corzine.
    Senator Corzine. Thank you, Mr. Chairman.
    Let me echo, as I am sure all my colleagues would, the 
sentiment that Senator Gramm reflects on service.
    Chairman Sarbanes. Senator Gramm will be leaving the Senate 
at the end of this year. As we get all these people in place, 
there will be a SEC there for quite a period of time that will 
reflect his input here.
    Senator Gramm. And then I will be able to become rich in 
this environment that you are going to create.
    [Laughter.]
    Senator Corzine. Ms. Glassman, you are an economist. You 
made the point several times today. What do you think, and 
particularly connecting it with some of the remarks, or at 
least the thrust of the questions that Senator Akaka brought 
forward, about financial literacy in this country? How do you 
think the American investing public understands the footnoting 
of options, and whether they are able to derive the implied 
expense that might be there, or maybe some of us think should 
be clearly reflected? I would certainly like to hear your 
opinion on that as well.
    But the important issue is do you think when you put 
together the financial literacy concerns that both of you have 
expressed and then look at the options questions, have we had a 
misallocation of capital as a function of how our income 
statements have been presented to the investing public?
    Ms. Glassman. The simple answer to your first question is I 
would be astonished if most Americans understood the footnotes 
in the financial statements. But the real question is on the 
question of options.
    As an economist, I think stock options, do represent an 
expense to the shareholders. Clearly, they dilute the 
shareholders' interests. Therefore, it is important not only 
that shareholders understand the impact of that dilution on 
their interest, but also that they have the ability to vote on 
those options, at least to the extent that they are material. 
At the Commission, we have definitely been moving in that 
direction.
    Whether options should be explicitly expensed or very 
clearly stated in the management discussion or upfront in the 
report, I believe is an accounting issue that is best left to 
FASB. But whatever the outcome, I think it is critical that 
options are clearly understood. The market is already 
recognizing this. The market now understands the importance of 
options.
    Senator Corzine. As an SEC Commissioner, you believe it 
should best be left with FASB?
    Ms. Glassman. The specific accounting treatment should be 
left with FASB. However, I think it is important that the 
information itself be pulled up out of the footnotes somehow, 
whether it is in the MD&A or explicitly expensed. A number of 
companies, as you know, are already expensing it. The problem, 
and the reason it is not a simple decision, is that the 
valuation of the options is very complex. Getting agreement on 
what makes sense in terms of valuing them is really the hard 
part.
    Chairman Sarbanes. I would point out to my colleagues that 
the second set of lights on the vote--there is a vote on--have 
gone off just now.
    Jon, why don't you continue? It is my intention when you 
finish, if you are satisfied at that point, to adjourn the 
hearing instead of resuming. But I will come back if anyone 
wants to pursue it.
    Senator Corzine. I would love to hear the shorthand 
response to the allocation of capital that many economists and 
econometricians have spoken to that we have misallocated, 
potentially.
    Ms. Glassman. To the extent that investors in the market 
did not understand the impact of the options, and I believe 
that until relatively recently, most people did not understand 
the impact, then, clearly, resources have been misallocated.
    Senator Corzine. Mr. Campos, any comments on any of these 
issues?
    Mr. Campos. It is a complex issue. I think all who have 
studied and all academics right now would agree with Chairman 
Greenspan and Warren Buffett that options are compensation and 
need to be treated as such. Clearly, options dilute earnings. 
You would hope that sophisticated financial analysts would 
understand that and have been factoring that in, but clearly, 
the public hasn't.
    The other issue that I am concerned about is if we go down 
this road, which I think is appropriate, and FASB should be 
allowed because they have done a lot of work on this issue, to 
finish up, if GAAP ends up essentially requiring expensing of 
options, when you have small companies that are not publicly 
traded, that are not publicly held, that essentially are start-
ups, you have a huge difficulty of valuation of their options. 
And a lot of those companies' ability to attract talent has to 
do with those options. The American Dream, if you will, of 
creating a company and creating value. Those options are 
essential. And how do you value those options when you have 
only an idea to speak of at that particular point in time?
    Senator Corzine. Thank you.
    Chairman Sarbanes. Well, I want to thank the witnesses. Ms. 
Glassman, I have to ask you a question because it comes up in 
the press. Some assert this Commissioner came out of the 
accounting business, that that is a troubled area right now 
that needs tight oversight and supervision. They have raised 
questions about people taking over the Commissionership coming 
out of that background. What would your response be to that?
    Ms. Glassman. I have had a 30 year career. The last five 
were at an accounting firm as an economist. That experience has 
been very helpful in my understanding of how the accounting 
industry and the accounting profession do their jobs and how 
they are organized. But I do not work for them any more. For 
the past 6 months, I have worked for the American public. And 
if confirmed, I will continue to work for the American public.
    Chairman Sarbanes. Thank you very much. I thank both of our 
nominees. It has been a very good hearing, and the hearing 
stands adjourned.
    Mr. Campos. Thank you.
    Ms. Glassman. Thank you.
    [Whereupon, at 11:16 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketches of nominees, 
and response to written questions follow:]

               PREPARED STATEMENT OF CYNTHIA A. GLASSMAN
       Member-Designate, U.S. Securities and Exchange Commission
                             July 23, 2002

    Chairman Sarbanes, Senator Gramm, and distinguished Members of the 
Committee, I am deeply honored to appear before you today to seek your 
approval of my nomination by President Bush to serve as a Member of the 
Securities and Exchange Commission. If confirmed by the Senate, I look 
forward to continuing to fulfill the responsibilities of an SEC 
Commissioner along with my new colleagues.
    Accompanying me today on this important occasion are my husband, 
Dr. Leonard Glassman, my son and his wife, Kenneth and Dr. Melissa 
Glassman, and my mother-in-law, Mary Glassman.
    I am a PhD economist with 30 years of experience analyzing 
financial services regulatory policy issues in the public and private 
sectors. I have worked at the Federal Reserve, two small consulting 
firms, a large accounting firm, and for the past 6 months, the SEC. 
Specific expertise that I bring to my responsibilities as a 
Commissioner includes risk management, competitive analysis, and 
financial reporting. I have also specialized in conducting analyses on 
the continuing relevance of a wide range of financial services 
regulations in a changed business environment.
    As an economist, I believe strongly in letting markets work. 
Nevertheless, there is an important role for regulatory oversight to 
ensure that competition is fair, and that information provided to 
customers is clear, accurate, and complete. Regulations should create 
the right incentives to accomplish their goal, should be based on a 
good understanding of how the business works, and should not result in 
unintended consequences, either for regulated companies or for their 
customers. In the current environment, the need for strong regulatory 
oversight could not be more apparent.
    When I was being considered for an appointment to the Commission 
last fall, I had identified several issues as important to the SEC's 
mission:

 Are the Depression-era rules under which the SEC operates 
    still relevant?
 Is the regulatory process providing the right incentives, or 
    is it resulting in unintended consequences?
 Is the securities market structure appropriate?
 Are investors receiving the information they need about 
    domestic and global companies to make good investment decisions?
 Is investor education adequate for our complex financial 
    markets?

    Recent events have shown how critical these issues are. Almost 6 
months into my recess appointment as SEC Commissioner, I am outraged at 
the financial fraud, misleading information, and investor losses that 
have come to light. Given the extraordinary events of the last year, 
the Commission's number one job right now is to restore investor 
confidence in our markets and market participants. There is no question 
that companies must be held accountable, and individuals need to be 
held responsible, for adhering to both the letter and the spirit of the 
Federal securities laws. But the SEC, in partnership with the Congress, 
the Administration, and the States, must continue to be a driving force 
in assuring that we have the appropriate securities laws and rules and 
that we enforce them vigorously.
    I began my career in the public sector with the Federal Reserve 
System, and I am proud to return to public service as a Commissioner of 
the SEC. My 6 months of hands-on experience as a Commissioner have only 
increased my respect for the agency and its entire staff and my 
appreciation of the challenges the Commission faces.
    Thank you, Mr. Chairman, Senator Gramm, and Members of this 
Committee for this opportunity. I would be happy to answer any 
questions you may have.

















































                  PREPARED STATEMENT OF ROEL C. CAMPOS
       Member-Designate, U.S. Securities and Exchange Commission
                             July 23, 2002
    Chairman Sarbanes, Senator Gramm, distinguished Members of this 
Committee, I cannot adequately describe to you the sheer delight that I 
feel and the deep appreciation that I have for the opportunity to 
appear before you today. I am deeply honored to have been nominated to 
serve my country on the Securities and Exchange Commission.
    Please allow me to introduce to you my wife, Mini. Mini and I were 
high school sweethearts. She is my life partner, my closest friend, and 
wisest adviser. Mini is a graduate of Harvard Medical School and is a 
practicing physician. We have been blessed with two sons, David, who is 
16 and Daniel, who is 12. Our sons bring Mini and me joy and pride 
every day of our lives. Regrettably, our sons could not be here with us 
today.
    With your indulgence, I will very briefly share some of my life's 
experiences and perspectives and then provide a few observations about 
the unique challenges facing the SEC.
    I am Mexican-American. My life's journey began in the small town of 
Harlingen, Texas, near the Mexican border in the southern tip of Texas. 
I was raised in a humble household, in which only Spanish was spoken. 
My father, who could not be here today, is 88 years old. Like many in 
his generation, my father had to drop out of school in the sixth grade 
to help on the family farm. Later, when his country needed him, my 
father volunteered and enlisted in the U.S. Army to serve in World War 
II. He saw combat in Europe and was wounded in Germany and became 
partially disabled. During my childhood, my father often had three or 
four jobs at one time to make ends meet and to provide for our family. 
My brothers and I would often help my dad in doing construction or 
whatever extra job he had committed to do. He taught my brothers and 
sister that honest hard work was noble, that service to our country was 
honorable, and that education was the most valuable possession a person 
could have.
    My dad had a simple version of the American Dream. He believed that 
hard work and sacrifice would produce better opportunities for his 
children and permit him to live with dignity in his old age. Like 
millions of Americans today, my dad today is retired and lives on his 
savings, Social Security, and pension benefits. The series of recent 
business scandals and the resulting crisis of confidence in our 
financial markets threatens the future of my father and millions of 
retirees. In my home town of Houston, Texas, I have seen neighbors, who 
had worked for years for a certain major company, suddenly and without 
warning, be without a job, without meaningful severance, and with their 
retirement accounts wiped out. I worry, that inevitably, these 
corporate abuses may create a separate crisis of confidence and that 
the American public will come to question whether the American Dream 
has become an illusion. If confirmed, I pledge to work tirelessly with 
you and my colleagues at the SEC to restore the faith of the public in 
the integrity of our financial markets.
    I have been blessed during my life to have had the opportunity to 
pursue higher education and to serve my country. As you know, apart 
from my military service, I was a Federal prosecutor in Los Angeles. I 
investigated, tried, and convicted Members of major criminal 
enterprises and sent them to jail. I am informed that if the Senate 
chooses to confirm me, I will be the first person to serve as an SEC 
Commissioner with a law enforcement background. If confirmed, I will 
bring my experience and accept the heavy responsibility to fairly and 
carefully judge and determine the appropriate enforcement action and 
sanctions in the many pending and future SEC investigations.
    As you also know, I have spent about 16 years in private legal 
practice as a corporate transactions lawyer and as a corporate 
litigation and trial attorney. For the past few years, I have been an 
executive and part owner of a small private company. If confirmed, I 
will bring to the Commission my experience in having dealt with the 
challenges of building and operating a company in the private sector. 
One of the missions of the SEC that I will embrace if confirmed is to 
promote an environment in which small, entrepreneurial, and emerging 
companies can raise capital efficiently. As we all know, small and 
emerging companies will produce much of the Nation's future economic 
growth, creating a large share of tomorrow's new jobs and innovation, 
and such companies will help to validate the American Dream. Over the 
years, the SEC together with the able oversight of this Committee has 
earned universal respect and admiration. If confirmed, I promise to use 
all of my God-given abilities to uphold the SEC's legacy of exercising 
fair and tough-minded regulatory authority.
    The Senate last week took a historic and courageous step restoring 
the public's confidence in the financial markets by passing the Public 
Company Accounting Reform and Investor Protection Act of 2002. I, along 
with the rest of the Nation, am in your debt Chairman Sarbanes for the 
crucial role that you and this Committee played in bringing about this 
legislation. If I am honored by being confirmed, I look forward with 
great anticipation to working with you Mr. Chairman, Senator Gramm, and 
this Committee, and with Chairman Pitt and my fellow Commissioners and 
the talented staff at the SEC. There is much work to be done. However, 
I 
believe that we can together succeed and ably discharge our sacred 
trust and our obligations to the American people.
    Thank you for this opportunity to appear before you today. I will 
do my best with any questions you may have.

























RESPONSE TO A WRITTEN QUESTION OF SENATOR CORZINE FROM CYNTHIA 
                          A. GLASSMAN

Q.1. Senator Corzine would like to give both nominees the 
opportunity to answer the second part of his question regarding 
whether there has been a misallocation of capital given the 
current footnoting of options.

A.1. To the extent that the average investors do not understand 
the implications of a company's grant of stock options on the 
company's earnings, their investment decisions are not fully 
informed. Investments made on the basis of such an inadequate 
understanding would result in the misallocation of resources 
because those companies that issue such options may be 
perceived to have higher earnings than they would if the impact 
of the options were fully understood.
    While information on the impact of stock options is 
contained in the footnotes to financial statements, it is my 
impression that, at least until recently, many investors were 
not aware of the information and what it meant for them. Given 
the recent publicity on the issue, investors, analysts, and the 
media are much more cognizant of the dilutive effect of stock 
options and the impact of stock options on investors' returns. 
More transparency of the impact of stock options could only 
result in better resource allocation.

RESPONSE TO A WRITTEN QUESTION OF SENATOR CORZINE FROM ROEL C. 
                             CAMPOS

Q.1. Senator Corzine would like to give both nominees the 
opportunity to answer the second part of his question regarding 
whether there has been a misallocation of capital given the 
current footnoting of options.

A.1. Assuming the Senator refers to capital that has been used 
to purchase equity, the answer would depend on the quality of 
the analysis done in evaluating the financial statements. 
Presumably, sophisticated analysts and users of financial 
statements have used and interpreted footnotes and understood 
the consequences and use of stock options in effecting earnings 
per share and the ultimate net income results. To the extent 
users of financial statements have not been sophisticated users 
of financial statements, then the impact of stock options may 
not have been properly assessed to determine the prospects of 
an investment in that company. Clearly, most of the Members of 
the public are not sophisticated users of financial statements 
and likely have not understood the impact on earnings and 
future share price from the existence of stock options.
