[Senate Hearing 111-796]
[From the U.S. Government Publishing Office]
S. Hrg. 111-796
CFTC, USDA FARM CREDIT
NOMINATIONS HEARING
=======================================================================
HEARING
before the
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 30, 2009
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
Available via the World Wide Web: http://www.agriculture.senate.gov
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COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
BLANCHE L. LINCOLN, Arkansas, Chairman
PATRICK J. LEAHY, Vermont SAXBY CHAMBLISS, Georgia
TOM HARKIN, Iowa RICHARD G. LUGAR, Indiana
KENT CONRAD, North Dakota THAD COCHRAN, Mississippi
MAX BAUCUS, Montana MITCH McCONNELL, Kentucky
DEBBIE A. STABENOW, Michigan PAT ROBERTS, Kansas
E. BENJAMIN NELSON, Nebraska MIKE JOHANNS, Nebraska
SHERROD BROWN, Ohio CHARLES E. GRASSLEY, Iowa
ROBERT P. CASEY, Jr., Pennsylvania JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
MICHAEL BENNET, Colorado
KIRSTEN GILLIBRAND, New York
Robert Holifield, Majority Staff Director
Jessica L. Williams, Chief Clerk
Martha Scott Poindexter, Minority Staff Director
Vernie Hubert, Minority Chief Counsel
(ii)
C O N T E N T S
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Page
Hearing(s):
CFTC, USDA Farm Credit Nominations Hearing....................... 1
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Wednesday, September 30, 2009
STATEMENTS PRESENTED BY SENATORS
Lincoln, Hon. Blanche L., U.S. Senator from the State of
Arkansas, Chairman, Committee on Agriculture, Nutrition, and
Forestry....................................................... 4
Chambliss, Hon. Saxby, U.S. Senator from the State of Georgia.... 7
Bennet, Hon. Michael, U.S. Senator from the State of Colorado.... 8
Bennett, Hon. Bob, U.S. Senator from the State of Utah........... 9
Nelson, Hon. E. Benjamin, U.S. Senator from the State of Nebraska 10
Panel I
Chilton, Bartholomew, Nominee to be a Commissioner, Commodity
Futures Trading Commission..................................... 11
O'Malia, Scott, Nominee to be a Commissioner, Commodity Futures
Trading Commission............................................. 14
Sommers, Jill, Nominee to be a Commissioner, Commodity Futures
Trading Commission............................................. 16
Panel II
Avalos, Edward M., Nominee to be Under Secretary of Agriculture
For Marketing and Regulatory Programs and Member of the Board
of Directors, Commodity Credit Corporation..................... 29
Sherman, Harris D., Nominee to be Under Secretary of Agriculture
for Natural Resources and Environment and Member of the Board
of Directors, Commodity Credit Corporation..................... 32
Spearman, Kenneth Albert, Nominee to be Member of the Farm Credit
Administration Board, Farm Credit Administration............... 34
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APPENDIX
Prepared Statements:
Cochran, Hon. Thad........................................... 44
Roberts, Hon. Pat Roberts.................................... 47
Avalos, Edward M............................................. 48
Chilton, Bartholomew......................................... 50
O'Malia, Scott............................................... 56
Sherman, Harris D............................................ 59
Sommers, Jill................................................ 61
Spearman, Kenneth Albert..................................... 63
Document(s) Submitted for the Record:
Committee questionnaire and Office of Government Ethics
Executive Branch Personnel Public Financial Disclosure
Report filed by Edward M. Avalos........................... 68
Committee questionnaire and Office of Government Ethics
Executive Branch Personnel Public Financial Disclosure
Report filed by Bartholomew Chilton........................ 82
Committee questionnaire and Office of Government Ethics
Executive Branch Personnel Public Financial Disclosure
Report filed by Scott O'Malia.............................. 100
Committee questionnaire and Office of Government Ethics
Executive Branch Personnel Public Financial Disclosure
Report filed by Harris D. Sherman.......................... 137
Committee questionnaire and Office of Government Ethics
Executive Branch Personnel Public Financial Disclosure
Report filed by Jill Sommers............................... 178
Committee questionnaire and Office of Government Ethics
Executive Branch Personnel Public Financial Disclosure
Report filed by Kenneth Albert Spearman.................... 193
Various organizations, letters of support and endorsement of
Scott O'Malia to be a Commissioner of the Commodity Futures
Trading Commission........................................213-215
Various organizations, letters of support and endorsement of
Harris D. Sherman to be Under Secretary of Agriculture for
Natural Resources and Environment and Member of the Board
of Directors, Commodity Credit Corporation................216-224
Question and Answer:
Lincoln, Hon. Blanche L.:
Written questions for Bartholomew Chilton.................... 226
Written questions for Jill Sommers........................... 226
Additional questions for Edward Avalos....................... 228
Barrasso, Hon. John:
Written questions for Harris Sherman......................... 229
Baucus, Hon. Max:
Written questions for Harris Sherman......................... 231
Written questions for Bartholomew Chilton.................... 232
Written questions for Jill Sommers........................... 232
Written questions for Scott O'Malia.......................... 232
Cantwell, Hon. Maria:
Written questions for Bartholomew Chilton.................... 233
Written questions for Scott O'Malia.......................... 233
Written questions for Jill Sommers........................... 233
Chambliss, Hon. Saxby:
Written questions for Harris Sherman......................... 235
Written questions for Edward Avalos.......................... 236
Cochran, Hon. Thad:
Written questions for Edward Avalos.......................... 238
Grassley, Hon. Charles E.:
Written questions for Bartholomew Chilton.................... 239
Written questions for Jill Sommers........................... 239
Written questions for Scott O'Malia.......................... 239
Written questions for Edward Avalos.......................... 239
Written questions for Kenneth A. Spearman.................... 239
Harkin, Hon. Tom:
Written questions for Harris Sherman......................... 241
Written questions for Edward Avalos.......................... 242
Written questions for Kenneth Spearman....................... 244
Klobuchar, Hon. Amy:
Written questions for Bartholomew Chilton.................... 245
Written questions for Jill Sommers........................... 245
Written questions for Scott O'Malia.......................... 245
Written questions for Edward Avalos.......................... 245
Roberts, Hon. Pat:
Written questions for Jill Sommers........................... 247
Written questions for Bartholomew Chilton.................... 247
Written questions for Scott O'Malia.......................... 247
Written questions for Edward Avalos.......................... 247
Stabenow, Hon. Debbie:
Written questions for Edward Avalos.......................... 248
Written questions for Harris Sherman......................... 248
Avalos, Edward M.:
Written response to questions from Hon. Blanche L. Lincoln... 249
Written response to questions from Hon. Saxby Chambliss...... 252
Written response to questions from Hon. Tom Harkin........... 256
Written response to questions from Hon. Debbie Stabenow...... 259
Written response to questions from Hon. Amy Klobuchar........ 260
Written response to questions from Hon. Pat Roberts.......... 261
Written response to questions from Hon. Thad Cochran......... 261
Written response to questions from Hon. Charles E. Grassley.. 262
Chilton, Bartholomew:
Written response to questions from Hon. Blanche L. Lincoln... 264
Written response to questions from Hon. Max Baucus........... 264
Written response to questions from Hon. Pat Roberts.......... 265
Written response to questions from Hon. Charles E. Grassley.. 265
Written response to questions from Hon. Amy Klobuchar........ 266
Written response to questions from Hon. Maria Cantwell....... 267
O'Malia, Scott:
Written response to questions from Hon. Charles E. Grassley.. 272
Written response to questions from Hon. Pat Roberts.......... 273
Written response to questions from Hon. Max Baucus........... 273
Written response to questions from Hon. Amy Klobuchar........ 274
Written response to questions from Hon. Maria Cantwell....... 274
Sherman, Harris D.:
Written response to questions from Hon. Saxby Chambliss...... 278
Written response to questions from Hon. Tom Harkin........... 280
Written response to questions from Hon. Max Baucus........... 282
Written response to questions from Hon. Debbie Stabenow...... 283
Written response to questions from Hon. John Barrasso........ 286
Written response to additional questions from Hon. Saxby
Chambliss.................................................. 290
Sommers, Jill:
Written response to questions from Hon. Maria Cantwell....... 293
Written response to questions from Hon. Max Baucus........... 297
Written response to questions from Hon. Charles E. Grassley.. 297
Written response to questions from Hon. Pat Roberts.......... 299
Written response to questions from Hon. Amy Klobuchar........ 300
Written response to questions from Hon. Blanche L. Lincoln... 300
Spearman, Kenneth Albert:
Written response to questions from Hon. Charles E. Grassley.. 301
Written response to questions from Hon. Tom Harkin........... 301
CFTC, USDA FARM CREDIT
NOMINATIONS HEARING
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Wednesday, September 30, 2009
U.S. Senate,
Committee on Agriculture, Nutrition and Forestry
Washington, DC
The Committee met, pursuant to notice, at 9:50 a.m., in
room 328A, Russell Senate Office Building, Hon. Blanche
Lincoln, chairman of the Committee, presiding.
Present: Senators Lincoln, Harkin, Leahy, Klobuchar,
Nelson, Chambliss, Lugar, Cochran and Thune.
Senator Harkin. First I would just like to say that this is
a kind of a bittersweet moment for me. I have been honored to
chair this Committee and I have been honored to be on it for 25
years now and then 10 in the House. It has just been a great
pleasure and honor to be able to be the chair of this wonderful
Committee and I want to thank all of the members of the
Committee for the great cooperation that you have given me in
the past and for especially in the development of the last Farm
Bill.
I especially want to think Saxby Chambliss for a great
working relationship, both personally and among our staff, and
I cannot thank you enough for all that we did together to work
together to get a really great Farm Bill through and I want to
thank you for that.
However, I must say that my sadness in leaving the
chairmanship is more than compensated by the knowledge that the
person taking over the chair is someone that is devoted,
devoted to the well-being of our family farmers, is devoted to
the economic vitality of our rural communities and, of course,
to the nutrition of our children.
And so I am honored to be able to turn over the gavel this
morning to Senator Lincoln. I am cognizant of the fact that
this is indeed an historic moment. No woman has ever chaired
this Committee and this will also be the first Arkansan to ever
chair the Agriculture Committee.
So it is with great pleasure and great pride to be able to
give the gavel now to you, Senator Lincoln of Arkansas, and we
are proud to call you our chairman.
[Applause.]
Chairman Lincoln. Thank you. Thank you all so much for such
an incredible warm welcome to this chairmanship. I am
enormously grateful to all of my colleagues for their
confidence that they placed in me in the ability to run this
Committee and I am so indebted to each and every one of them
for the unbelievable devotion that they give to this Committee.
I know with that kind of devotion, hard work and
friendship, we are going to do great things in the Senate
Agriculture Committee. So thank you so much, Chairman Harkin,
and to all the former chairmen who are here, which are a lot.
So I am very grateful and thanks to all of you all for
participating in my first hearing, which I am delighted to be a
part of.
Senator Chambliss. Madam Chairman, before you take off on
your first official business, let me say first of all to my
good friend Tom Harkin, I appreciate those kind comments. It
has been a real pleasure to work with you, Tom. We have had a
great working relationship and as you say, our staffs have
worked extremely well together and we have been through some
difficult times together trying to look after American farmers
and ranchers.
Under your leadership, I think we have accomplished an
awful lot. We will still call you Mr. Chairman, but it will
just be in a little different capacity there. But we look
forward to having you continue on this Committee and you are
exactly right that handing off the gavel to Blanche Lincoln has
to be a pleasure for you and certainly a pleasure for me.
Blanche and I worked on so many issues together, both on
the Ag Committee and off the Ag Committee. When I sit down with
her, I do not need an interpreter. We seem to both speak slowly
enough that we can understand each other, coming from the same
part of the world. She, obviously having grown up on a family
farm, knows and understands and has a great appreciation for
the difficulties that farmers and ranchers are going through
right now.
Her leadership is going to pick up right where you left
off, Tom, and we are not going to miss a beat. She is such a
great friend, a great leader. It is going to be a lot of fun to
have a chance to work with you Blanche, so congratulations to
you. Your colleagues on the Democratic side have made a wise
choice in bringing you forward.
Gosh, we are going to have to get a wide angle lens, sure
enough, to get all of these former chairmen that are in this
room now and on this Committee in any photograph. I think that
speaks well for the Committee.
Chairman Lincoln. It does.
Senator Chambliss. We look forward to your leadership.
Chairman Lincoln. Thank you.
Senator Chambliss. Congratulations.
Senator Leahy. Madam Chairman.
Chairman Lincoln. Absolutely.
Senator Leahy. If I could just make--as one who has served
on this Committee now for 35 years, I am delighted to see you
here. You are a true daughter of rural America and for those of
us who were born and raised in rural America, it means a lot.
It is more than just particular commodities, but it is what it
means for all of rural America and the need for us to have you
here.
I do want to commend both Tom Harkin and Saxby Chambliss
for the way they have switched hats back and forth and the way
they have run this Committee in a bipartisan, often non-
partisan fashion, and that means a lot. Dick Lugar and I did
that. As both chairman and ranking member, we had the
opportunity, both of us, to serve in both capacities and be
able to work out most things. I think it is because we were
able--I wish we could do that in all committees. Not thinking
of any one in particular, but the fact that we were able to
work things out and you have that ability.
Thad Cochran, the same way, has chaired this Committee.
Maybe we should have a special chairman pin or former chairman
pin, because we are all here.
Chairman Lincoln. We will work on that.
Senator Leahy. I will tell one very quick story, which
Senator Lugar knows. When we were both brand new members and
sitting way, way down at the end, and former chairman, Herman
Talmadge, and Jim Eastland were sitting up here and Senator
Eastland brought up some little old amendment, it was about
this thick, and just hands it to Talmadge and says, Talmadge
says, well without objections, it is accepted.
And I said, wait a minute, could I ask what is in that? The
two of them pulled their cigars out of their mouth, looked way
down where Lugar and I are sitting. Dick and I are there. They
were trying to figure out whether it was Dick Lugar said it or
I said it. Either way, they did not know who the heck either
one of us were. Talmadge just says, we are adjourned.
[Laughter.]
Senator Leahy. You will be a different type of chair.
Chairman Lincoln. I promise.
Senator Leahy. Thank you and I will go down to Judiciary.
Chairman Lincoln. Well, thank you, Senator Leahy.
Senator Lugar. Madam Chairman, if I am just a moment
spurred on by Senator Leahy's comments about the two of us
sitting at the end of the table, the table then extended almost
all the way to the door. As I recall, those who are now sitting
in the chairs in the way were on the sidelines in some fashion.
There was mention of smoke. As a matter of fact, the
chairman and Senator Eastland were engulfed in smoke so that we
could hardly see their faces in the midst, a change in culture
during the period of this thing.
Chairman Lincoln. We are growing and changing.
Senator Lugar. Yes. We appreciate your coming to the
chairmanship very much.
Chairman Lincoln. Thank you.
Senator Lugar. We look forward to working with you.
Chairman Lincoln. Absolutely. We do.
Senator Klobuchar. Madam Chair?
Chairman Lincoln. Yes?
Senator Klobuchar. If I could just on behalf of the women
in the Senate, we are so excited about you taking this new
position. I was thinking of all those girls in 4-H showing up
at our state fair and all those farming women out there. You
have really set a new standard and a new mentor for people who
farm and women who farm.
So I wanted to just say that, and I will miss making Iowa
jokes to the chairman. I can't. You know, Minnesota, we like to
do that.
Chairman Lincoln. But Arkansas is so much more colorful.
[Laughter.]
Senator Klobuchar. Yeah, I am sure there are no Arkansas
jokes that I can come up with. I do know Minnesota, Arkansas
are No. 1 and three for turkeys in the country.
Chairman Lincoln. There you go.
Senator Klobuchar. No one should make turkey jokes. But
congratulations again and thank you for your chairmanship,
Senator Harkin.
STATEMENT OF HON. BLANCHE L. LINCOLN, U.S. SENATOR FROM THE
STATE OF ARKANSAS, CHAIRMAN, COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
Chairman Lincoln. Well thank you all and I am going to call
the Committee to order here. The Committee on Agriculture,
Nutrition and Forestry will come to order.
Just a special thanks to all of you all and would hope you
would allow me to begin on a personal note since this is my
first opportunity to officially chair the Committee. It is a
tremendous honor to serve as chairman of this Committee and I
will endeavor to be the type of steward of this position that
the American people and the people of Arkansas deserve. With
all of your help, I know I can accomplish that.
As all of you know, the Senate Agriculture Committee does
have a well earned and a time-honored reputation for
bipartisanship and for working together to promote policies
that are born not out of partisanship, but out of consensus as
to what policies are proven to work. I could not ask for a
better partner than my ranking member here, Saxby Chambliss.
I have the privilege and benefit of serving beside five
previous chairmen of this Committee and one previous chairman
of the House Agriculture Committee--I will not forget my good
buddy Pat Roberts who I had to beg to get on the House Ag
Committee and he finally let me on--each of whom have served
with great distinction and from whom we have learned a
tremendous amount.
Also among our Committee's membership, I count four
chairmen, three ranking members of our very important Senate
committees, as well as a former secretary of Agriculture and
the Senate Republican leader, each of whom adds to the
collective experience, strength and wisdom of this great panel.
So let me always say that I truly appreciate the regional
diversity that is reflected on this Committee and the unique
areas of expertise and interest possessed by each of our
members on the Ag Committee. Despite significant policy
challenges that we have faced over the years, and even
differences of opinion now and again, this Committee has always
pulled together and risen to the occasion.
In short, I am very, very proud of each member's
contribution to this Committee and I appreciate what each of
you all will bring to the table as we move forward on so many
critical issues. I am really looking forward to working with
each of you all. We have a lot of things on our plate and
promoting economic opportunity and jobs in rural America in
these economic times, we have great opportunity.
My dad always said, when you have tremendous challenges,
look hard because you will find the opportunities. We have
opportunities in meeting the nutritious needs of our school
children and elderly and low-income families, again,
particularly in these economic times and continuing to build
our successful resource conservation efforts, which we know and
many of us have experienced and realized whether it is on our
farms or without a doubt in working with your farmers and
ranchers across the country.
We have the opportunity of enhancing America's energy
independence and ensuring that the men and women who have
clothed and fed this nation in a manner that is unrivaled in
history continue to do what they do best, and that we can
reinforce them and we can empower them to continue to do that
and I look forward to it.
In this last regard, I would like to quote our late
President John F. Kennedy who said, our farmers deserve praise,
not condemnation and their efficiency should be cause for
gratitude, not something for which they are penalized. With 6.8
billion people sharing this world that we live in today,
compared to the roughly three million in 1960, President
Kennedy's words ring truer today than ever before.
I know and you all know that sometimes the Ag Committee is
not the most glamorous committee on Capitol Hill, but we have a
tremendous responsibility and opportunity to really reflect to
the American people and the world the hard working men and
women, their families, across this great country that do such a
tremendous job.
So whether you are from Iowa or Arkansas, Georgia or
Vermont, California or Idaho, if you work to feed and clothe
this nation and those around the world, all across the globe,
this chairman and this Committee are firmly on your side. And I
know that the ranking member of the Committee, my good friend,
Saxby Chambliss, shares these goals and sentiments and I could
not have a greater friend or a more respected Senate colleague
than my partner on this Committee and I am grateful to you,
Senator Chambliss, for everything you and your staff do. I look
forward to so much moving forward and getting started on the
business of the Committee.
We are going to have a good time. We will work hard. We
will play hard and we will get things accomplished and I am
grateful to you for your friendship and help.
So now, moving on to the purpose of this hearing. We have
all had a great stroll down memory lane and we are going to
allow the chairman to move to his new chairmanship.
Senator Harkin. Madam Chairman, this also is my first day
to chair my new committee, so I beg your leave. I have to leave
to go chair my committee.
Chairman Lincoln. Well good luck to you and thank you
again, Mr. Chairman.
Senator Harkin. Congratulations.
Chairman Lincoln. Absolutely. So now we will move on to the
purpose, as we say our good byes here, to the hearing at hand.
Today the Committee is meeting to consider six nominations
to the USDA, the CFTC, the Farm Credit Administration, and
specifically, we consider two nominees for the U.S. Department
of Agriculture, Mr. Harris Sherman and Mr. Edward Avalos.
Sorry, got to get that one right.
Mr. Sherman has served as executive director of the
Colorado Department of Natural Resources for Gov. Bill Ritter
and Richard Lamm. In this capacity, Mr. Sherman gained
experience working on policies that he would be responsible for
if confirmed as the under secretary for Natural Resources and
Environment, including management of the Forest Service and the
Natural Resources Conservation Service.
Mr. Avalos--help me with that--Avalos has been nominated to
serve as the under secretary of Marketing and Regulatory
Programs. If confirmed, his mission would touch upon virtually
all of American agriculture. The three agencies under his
jurisdiction, the Animal and Plant Health Inspection Service,
the Grain Inspection Packers and Stockyards Administration, and
the Agricultural Marketing Service have broad ranging and
important responsibilities within the department.
Mr. Avalos was raised on a family farm in New Mexico, where
a variety of specialty crops are grown, including chili
peppers, pecans, onions, as well as staple crops like cotton
and wheat. His career in agriculture includes 29 years of
service at the New Mexico Department of Agriculture, where he
successfully worked to implement trade and promotion
initiatives aimed at increasing U.S. farm exports. Mr. Sherman
and Mr. Avalos are also nominated to serve as members of the
board of directors of the Commodity Credit Corporation.
We also meet to consider three nominees to the Commodity
Futures Trading Commission, Bart Chilton, Jill Sommers and
Scott O'Malia. The CFTC is tasked with regulating commodities
futures and options markets dealing with everything from cotton
futures to financial derivatives.
CFTC polices the markets that affect everything from the
food we eat to the gas that we put in our car to the loans we
borrow at our local banks. The CFTC protects market
participation from fraud, manipulation and other abuses while
making certain that the markets are fully functioning.
Congress, and in particular, this Committee, will soon
consider financial regulatory reform and the CFTC will have a
front and center role in this effort. In light of this, I am
pleased that the Committee is moving as expeditiously as
possible to consider these three nominees who bring years of
experience, knowledge and diverse perspectives to the
Commission.
The Commission and the staff at the CFTC face significant
challenges and a heavy workload in the coming months, so it is
vital to have this highly qualified team on the job.
Finally, we consider the nomination of Kenneth Spearman for
the Farm Credit Administration Board. The Farm Credit
Administration is responsible for regulating and examining the
banks, the associations and related entities of the Farm Credit
System and Farmer Mac. In 2007, Farm Credit System held about
34 percent of the farm sector's total debt, as much--such who
serve on that board play an extremely important role in
ensuring the continued availability of stable and adequate
credit in farm country all across the nation.
Mr. Spearman brings a wealth of experience to the Farm
Credit Administration Board. His work in cooperative banking
and on financial policy issues over the last 28 years will be
an invaluable asset to the Farm Credit Administration. Mr.
Spearman is nominated for a term that expires next year and for
a full 6-year term that expires in May of 2016.
I look forward to the statements of the nominees and their
answers to the questions that members of this Committee may
have. I would now like to yield to the ranking member, Senator
Chambliss, for any statement that he may have and then we will
have introductions from other senators.
STATEMENT OF HON. SAXBY CHAMBLISS, U.S. SENATOR FROM THE STATE
OF GEORGIA
Senator Chambliss. Well thank you very much, Madam
Chairman, and boy, it has a great ring to it, Madam Chairman.
Again, I want to congratulate you on taking the gavel, just to
let you know that you have great friends on this side of the
table, and as Senator Leahy said, we have always had a
bipartisan committee that is going to get even stronger as we
go through the final implementation of the current Farm Bill
and look forward to working on the next one as we are already
approaching that.
I think we would be a little remiss if on this side we did
not recognize the great work that the staff of Senator Harkin
has done. And to Mark and Susan, thank you all for your great
work, your great cooperation and your commitment to agriculture
across the country, and Madam Chairman, to you for bringing
Robert Holifield back to the Committee. We are very pleased to
have him back, having worked very closely with Robert on the
Farm Bill last year. He brings a great wealth of knowledge not
just there, but I just saw Chairman Gensler a minute ago, who
has come to show his generous support for these nominees.
I know he hates to lose Robert at CFTC, but if we move
forward to financial reform, this Committee is going to play an
integral role there and Robert has a very strong background
that he can bring to the table now to help us. So Robert, we
are pleased to have you here as a staff director under Chairman
Lincoln. It has a great ring.
Madam Chairman, thank you for holding this important
hearing and to consider these nominations pending before the Ag
Committee. As we seek to reform our financial system, address
the ongoing credit crisis, and have the recently enacted Farm
Bill properly implemented, it is vital that we have good
leadership in place at the Commodities Futures Trading
Commission, the Department of Agriculture, and the Farm Credit
Administration.
Commissioners Jill Sommers and Bart Chilton are no
strangers to the Ag Committee. Both were previously nominated
by President George W. Bush and confirmed by the Senate.
President Obama recognized their commitment to ensuring that
our commodity markets function properly and the need to keep
them in the trenches during this critical time.
I would also like to welcome Scott O'Malia to the
Committee. It has been far too long since the Commission was
fully seated and Senate confirmed. We must seek to have all
three of these nominees confirmed in a timely manner so that
all five commissioners can get to work on the important task
that the American public expects them to tackle. The chairman
and I were visiting earlier. I am not sure when was the last
time we had five full-fledged Senate confirmed commissioners,
so this will be an important historical monumental achievement
here.
Speaking of tasks, the Food Conservation Energy Act of 2008
was an enormous undertaking by Congress and was enacted over a
year ago. It expires in 2012 and yet there are a number of
provisions yet to be implemented. The Marketing and Regulatory
Programs' mission area at USDA covers many of these provisions.
Mr. Avalos, as under secretary, you will oversee a very diverse
portfolio at USDA, including plant and animal health, marketing
programs and commodity procurement, enforcement of grain
standards and fair practices in our meat and livestock
industry.
While each of these missions is distinct, they are
important to protecting our producers and expanding markets for
their products. I trust your long experience with both the
Texas and New Mexico Departments of Agriculture will make you a
true asset in this role.
Mr. Sherman, you will have a very big job managing our
national forests and grasslands, but you will also oversee
USDA's programs and activities that promote private land
stewardship and conservation. These are the programs that help
producers help the land. I look forward to working with you to
see that the Farm Bill conservation programs are implemented as
Congress intended and are working for producers.
Though there is a pain in agriculture, it generally has not
suffered as much as other parts of our economy over the past
year. I believe this was due in large part to the sound
financial management adopted by producers and their lenders,
including the Farm Credit System, over the past 20 years. I
hope and expect that will continue into the future and Mr.
Spearman, in your role, when confirmed as a member of the board
of the Farm Credit Administration, it will be your job to help
see that this happens. With your experience in agriculture,
accounting and finance, President Obama has found an excellent
candidate for the board of the Farm Credit Administration. I am
pleased that you have agreed to serve in that position.
Again, I want to thank Chairman Lincoln for making these
nominations her first priority and I look forward to a speedy
hearing and confirmation of all of these nominees. Thank you.
Chairman Lincoln. Thank you, Senator Chambliss. We have
some guests that are here to introduce some of our nominees and
Senator Bennet, I would like to turn to you first since you are
here to introduce Mr. Sherman. We are going to do all the
introductions first and then we will bring everybody up,
because I know that the other senators have other places to go.
Senator Bennett. Is it you?
STATEMENT OF HON. MICHAEL BENNET, U.S. SENATOR FROM THE STATE
OF COLORADO
Senator Bennet. It is me, unless you know Harris Sherman
too, in which case, it is better with one T.
Well Madam Chair, let me just say first, congratulations on
assuming the chairmanship. I had the good sense, as you know,
my colleagues, you may not know, to marry a woman from Eastern
Arkansas, from----
Chairman Lincoln. That is true.
Senator Bennet [continuing]. The next town over from you.
She sounds a lot like you, but she is not the chairman of the
Agriculture Committee. But I will say----
Chairman Lincoln. She is chairman at home though, isn't
she?
Senator Bennet. She is. She is, particularly because we
have three daughters. But I know how proud everybody back home
must feel about that. I know how proud Susan and her folks are
of this and so from them, let me say congratulations.
Chairman Lincoln. Thank you.
Senator Bennet. It is my pleasure today to introduce Harris
Sherman and speak in support of his nomination to be under
secretary of Natural Resources and Environment at the
department. I would also like to welcome his daughter Jessa,
who is here today, his sister Barbara Kailey, his brother David
Sherman and his niece Shawn Kailey Reagan, who are all here
today.
I have known Sherman since 2003, when he was serving as a
commissioner on the Denver Water Board. Today Harris serves as
executive director of the Colorado Department of Natural
Resources and is a member of Governor Ritter's cabinet. As
director, he oversees Colorado's energy, water, wildlife, parks
and state lands programs. Through the years, I can tell you
that Harris has demonstrated an ability to solve difficult
problems and balance competing interests regardless of the
politics.
If confirmed, his experience making hard decisions as
chairman of the Colorado Water Quality Control Commission,
chair of the Colorado Mined Land Reclamation Board and chair of
the Denver Regional Air Quality Council--There is not much left
in Colorado by the way--as well as his work with several non-
profit land organizations will prove important as the Nation
faces some of the most challenging natural resource issues in
decades.
I also want to note that Harris will be charged with
overseeing the U.S. Forest Service and the Natural Resources
Conservation Service. We know that forest and agriculture are
particularly vulnerable to the hazards of climate change and we
have seen it in Colorado. In Harris, I know Congress will have
a willing partner as we move forward with a pragmatic agenda
for protecting our forests and agricultural sector from this
severe threat.
Harris has been an invaluable asset to Colorado and made
contributions to our state we will never forget. We are glad to
share his talents with the rest of the country and I proudly
introduce him to the Committee. Thank you, Madam Chair.
Chairman Lincoln. Thank you, Senator Bennet.
Senator Bennet. Congratulations, Harris.
Chairman Lincoln. Now the other Senator Bennett, from Utah,
as a guest here. I think you wanted to introduce Mr. O'Malia.
STATEMENT OF HON. BOB BENNETT, U.S. SENATOR FROM THE STATE OF
UTAH
Senator Bennett. Thank you very much, Madam Chairman, and
we go from one T to two. Whether that is progress or not, I do
not--unlike those who talk about a long experience with the
person they are introducing, my relationship with Scott has
been relatively brief. We became acquainted just a year ago.
He was nominated for this position in the previous
administration and his nomination was blocked by a senator who
had a problem not with him, but another problem, and used his
nomination as the way to express distress over what the
administration was doing. As a consequence of that, when I took
over Senator Domenici's slot as the ranking member on the
Energy and Water Subcommittee of Appropriations, I inherited
Scott.
I am thinking of putting a hold on this nomination myself
in an effort to hang on to him because I have found that this
young man has an intellectual capacity to grasp a problem,
understand it, and then just as importantly, explain it to
someone who is a little less qualified to understand the
particulars, like myself. He has been an absolutely invaluable
member of the staff at the Energy and Water Subcommittee,
understanding all of these issues tremendously, high level of
energy and activity. There is nothing you can ask him to do
that he does not dig into very, very vigorously and very, very
well.
I think he will do a superb job at the Commodity Futures
Trading Commission. But I will reluctantly give him up to
recognize that there comes a time in everybody's career when
they need to move forward. I can recommend him absolutely
without any reservation as a dedicated public servant with
intelligence, integrity and energy that will do a superb job
wherever it is he goes.
So I am honored that he has asked me to make this
recommendation and I assure the Committee that voting for
Scott, and will assure the Senate, that voting for Scott for
this assignment is something that we will look back on with
great pride and sense of satisfaction as he proves his capacity
in whatever assignment he might ultimately get. He has my
unqualified endorsement.
Chairman Lincoln. Thank you Senator Bennett. Senator
Cochran, did you----
Senator Cochran. Madam Chairman, thank you very much. I
have a statement supporting the nomination of Scott O'Malia,
which I would ask to be printed in the record. I
enthusiastically, as Senator Bennett did, endorse his
nomination and urge the Senate to confirm him at the earliest
possible time.
Chairman Lincoln. Great. Thank you. Without objection, we
will enter that in the record.
[The prepared statement of Hon. Thad Cochran can be found
on page 44 in the appendix.]
Chairman Lincoln. Senator Nelson is going to join you all
over on this side. It is OK. Wherever. We are one big happy
family over here.
STATEMENT OF HON. E. BENJAMIN NELSON, U.S. SENATOR FROM THE
STATE OF NEBRASKA
Senator Nelson. Thank you, Madam Chair, and I want to
introduce Ken Spearman. Where is he? I just walked in. There he
is.
Chairman Lincoln. He is in the back.
Senator Nelson. He is the president's nominee to the Farm
Credit Administration Board and his wife, Maria is here. Where
is Maria? Over here. They live in Winter Haven, Florida and
that is right in the heart of Florida's citrus belt.
The Farm Credit Administration is obviously vital to your
agriculture in this country and it is the largest source of
credit to farmers and its effective functioning is crucial to
our economic health. You all know this. Given his unique
background and experience, he is especially suited for this
position. He has been a 28-year veteran of the citrus industry
and he serves as a director on the AgFirst Farm Credit Bank, so
he is very well versed in banking and finance policy issues.
I think we ought to point out that he is a veteran. He is a
Vietnam veteran. He served in Vietnam. Clearly Ken has been
involved in a lot of civic and social programs, including
tutoring in an adult literacy program, and has been chairman of
the board of the Lake Wales Medical Center. I just want to
bring all of this to the attention--obviously this is going to
be unanimous by acclamation, but I wanted to say my two bits
for him, and Madam Chairman, I am going back to the committee
meeting that you are missing right now.
[Laughter.]
Chairman Lincoln. I'm hearing regularly from them. Thank
you, Senator Nelson. We appreciate it. Appreciate all the
members here in support of our nominees.
To begin this, now we address at hand the business of the
day, and if I may, I would like to ask all of you all if you
would stand to take an oath.
Raise your right hand. Do you swear to tell the truth, the
whole truth and nothing but the truth?
Mr. Chilton. I do.
Mr. O'Malia. I do.
Ms. Sommers. I do.
Chairman Lincoln. Great. Again, a mandatory question for
you all, do you agree that if confirmed, you will appear before
any duly constituted committee of the Congress if asked?
Mr. Chilton. I will.
Mr. O'Malia. I will.
Ms. Sommers. I will.
Chairman Lincoln. Great. Thank you. And I would just say to
all of our nominees, if you do have family in the room and you
would like to introduce them, please do so. Our families are a
big part of all of our lives and it is important.
Mine are off in many different places, but I know my sweet
dad is looking down on me right now. He was a rice farmer in
Arkansas and a salt of the earth man and he is looking down on
me today as I take over the Senate Ag Committee, so I hope you
all will take that opportunity.
Commissioner Chilton, we would like to hear your statement
and we will go through and have questions after that.
STATEMENT OF BARTHOLOMEW CHILTON, NOMINEE TO BE A COMMISSIONER,
COMMODITY FUTURES TRADING COMMISSION
Mr. Chilton. It is a pleasure to be the first person to say
thank you, Madam Chair, and thank you to the members of the
Committee, particularly the former chairs, who have spent so
much time on the futures industry, more than you may have
wanted, but we appreciate it.
The industry has changed dramatically over time.
Agriculture, while it remains critically important not just to
me, but to all the members of the Committee, is really only 7
percent of the futures industry right now, as I say, an
important part. Euro dollars are the No. 1 traded contract. On
the physical side, crude oil is the No. 1 physically traded
contract.
The markets are now--even last year I was here, it was 80
percent traded electronically. Now it is 90 percent, so the
pits are sort of on their way out. The futures industry just in
this decade has increased fivefold and $200 billion has come in
from what I term as new speculators, and these are different
market participants. These are university endowments, hedge
funds, pension funds from state and local government,
electronically traded funds, index funds, et cetera.
They have a different modus operandi from the traditional
commercial participants who have been in these markets, like
farmers and ranchers and processors. They are different in
really two primary ways. First of all, they do not have an
interest in the underlying physical commodity, whether or not
it is wheat, corn, cotton, soybeans, or crude oil, et cetera.
Second, their trading strategy is different in that they
are not concerned about the daily ups and downs or supply and
demand. We term them sometimes price insensitive and I am
talking generically about them. Everybody has a little bit
different strategy. But what that means is they are concerned
with a longer time horizon in trading. They are concerned with,
for example, if crude oil will be worth more in 5 years than
say it is today, but not so much in the daily stuff.
And so there is a question about whether or not these new
speculators have had an impact that may have been unintended on
markets, creating an artificial price. Rice University recently
said that they were. The Petersen Institute earlier this week,
or maybe last week, said that they were. But in fairness, there
are lots of studies that say that they are not having an
impact.
So as a regulator, what do you do? My view is they are
having some impact. Two hundred billion dollars, I think, has
an effect. Now I am not suggesting they are driving prices or I
think the fundamentals of supply and demand are well intact,
but they are having an impact.
But even if you just suggest that it is possible that these
new speculators here are having an impact, it is uneconomic,
and by that I mean divorced from supply and demand. Even if
they are artificially having an impact on prices or have the
possibility of it, the Commodity Exchange Act says that we are
to deter that. So what appropriate mechanisms do we use that
you all have given us through the act to try and ensure that
there is no fraud, abuse or manipulation? One of the things we
are looking at is putting a limit on positions for traders.
This has worked pretty well with some hiccups, significant
hiccups in the last couple of years actually, but it has worked
fairly well in the Ag complex. But we do not have it in the
energy complex. We do not have position limits in the back
months and we do not have them in the metals complex either.
So I think some reasonable level may be appropriate. We
have never been about saying to a trader, you are not tall
enough to ride, you cannot participate in these markets. But it
seems to me that if it is impacting the risk that commercial
producers are using, that we certainly need to consider it. But
we need to look at all of the markets, not just the regulated
markets, and that means the over-the-counter markets, which are
currently unregulated.
In that regard, there are three things that I would like
you all to consider on this Committee and in Congress that I
hope will be included as part of what you do on regulatory
reform. First of all, I would like to ensure that we get this
OTC authority to look at the OTC markets and to regulate it
when it is going to impact price, the price that people pay for
gas and putting it in their cars or food on their table.
Second, our manipulation authority needs to be, though
standard, needs to be lowered. People have a hard time
believing this. In the 35 years that the CFTC has almost been
around, we have only had one, one successful manipulation
prosecution and that one is under appeal. So clearly the
standard needs to be lowered.
And the third thing is criminal authority. I would like to
get more of these financial felons and financial fraudsters put
in jail. If they do the financial crime, they should do the
time, something similar to what Beretta used to say. Now they
just pay the civil monetary fine. It does not quite have the
same zip to it, does it? And it does not have a deterrent
effect either.
And the final thing, and this is something I think we can
do back at the ranch at the CFTC, not for you all, but I want
you to know that we are on the case, and that is dealing with
consumers. All of these market participants, there is a lot of
new retail participants, a lot of individuals who are trading
and they are in their basements and offices, et cetera, and we
do not have anybody right now at the CFTC whose mission,
mandate and mantra is consumer literacy, helping them
understand what is going on and how these markets work.
If you look at what has been going on with all the Ponzi
cases, there is rampant Ponzimonian going on, not just in the
U.S., but around the world, and we need to do a better job. A
lot of folks that have good hearts and limited incomes are
being taken advantage from fraudsters and I am hopeful that
with the people dedicated to consumer education and consumer
affairs at the CFTC that we will do a lot better job in the
future.
Thanks. Congratulations again, and I look forward to taking
any questions at the appropriate point.
[The prepared statement of Mr. Chilton can be found on page
50 in the appendix.]
Chairman Lincoln. Thank you, Commissioner. I also would
like to--as we are looking to fill the seats here at the CFTC
and bring good help over there, Chairman Genzler, where is--
there he is right there. He is hiding. I did not see him at
first.
Chairman please stand up and let us thank you for the job
that you do.
Mr. Chilton. Commissioner Dunn is also here with us.
[Applause.]
Chairman Lincoln. And Mike? I saw Mike when he was coming
in and waved at him. Mike Dunn as well as commissioner. So
thank both of you gentlemen. We appreciate your being here.
[Applause.]
Chairman Lincoln. Mr. O'Malia.
STATEMENT OF SCOTT O' MALIA, NOMINEE TO BE A COMMISSIONER,
COMMODITY FUTURES TRADING COMMISSION
Mr. O'Malia. Madam Chairman, Ranking Member Chambliss and
members of the Committee, thank you for the opportunity to
testify today. Madam Chairman, I would like to congratulate you
on your accepting the chairmanship of this Committee. As a
father of three daughters, we are always looking for positive
role models, and today is a very good teaching lesson.
I am grateful to appear before you as President Obama's
nominee to serve as commissioner of the Commodity Futures
Trading Commission. I would like to thank Senator Bennett for
his support and willingness to introduce me to the Committee.
As a Michigan native, I would also like to thank Senator
Stabenow for her support as well.
Before I begin, I would take you up on your offer to
introduce my family. I am joined by my wife, Marissa, three
daughters, Kelsey, Claire and Macey, and I am joined by my
parents, John and Bev O'Malia. I appreciate their----
Chairman Lincoln. Why doesn't everybody stand up so we can
greet you as well?
[Applause.]
Mr. O'Malia. I am honored to be nominated by the president
to serve on the CFTC. Given the fact that this country has
experienced the worst financial meltdown since the Great
Depression, I recognize the enormous responsibility of this
office. Like everyone in this nation, I too have lost value in
my home, retirement and college savings. I am sensitized to the
hardship this crisis has caused families across the country.
This experience reinforces my strong belief that our
nation's financial regulators must be vigilant in their
oversight responsibilities to ensure transparency and
accountability in our markets. Furthermore, regulators must
recognize the inherent risk associated with trading products
which have contributed to the crisis and they must commit to
doing all they can to maintain stability and security of these
markets.
I believe the oversight of our financial institutions must
be strengthened. I am committed to exposing the underlying
risks and trading practices that might further destabilize our
economy. For the past 6 years, I have worked in the Senate
serving in the Senate Energy and Natural Resources Committee
and the Senate Appropriations Committee. During this time, I
have focused my work on energy policy with the goal of reducing
our nation's dependency on foreign energy resources and
expanding U.S. investments in clean energy technologies.
Over the past 3 years, the Senate Energy and Water
Subcommittee has authorized and appropriated over $50 billion
worth of self-financed loan guarantees. It has invested tens of
billions of dollars into research and development to support
the deployment of clean energy technology. Transformation of
our energy sector is more than Federal research assistance. It
requires billions of dollars in new investment that will only
occur if investors believe that markets are stable, provide
reliable price transparency and offer the opportunity to hedge
their commercial risks.
Prior to joining the Senate Energy Committee, I spent 2
years in the electricity sector. This experience provided an
invaluable education regarding the devastating impacts of
flawed market design and illegal trading behavior can have on
consumers. As a result of this experience, I am resolved to
prevent this catastrophe from being repeated.
I joined Mirant in February 2001 as the director of Federal
affairs, focused on Federal energy policy. I did not work for a
trading desk or for a business unit that managed generation
assets. By the time I arrived, it was already apparent the
California electricity market was dysfunctional. California had
experienced a difficult summer with record energy prices and a
blackout in June of 2000.
By November of 2000, FERC had determined that the
California market was flawed and making it possible for
manipulative trading behavior to cause an imbalance in supply
and demand and made the determination that electricity rates
were unjust and unreasonable.
In response to the trading behavior uncovered in 2001, I
worked with Mirant's chief risk officer and five other energy
companies to establish the Committee of Chief Risk Officers.
This organization was created to prevent and avoid the trading
abuses used by some in the industry to manipulate California
and western energy markets.
The CCRO established industry wide trading protocols,
improved price disclosure, encouraged clearing and standardized
contracts and established a corporate trading code of conduct.
These standards would give regulators, consumers and investors
a better view of the business and operations of these
companies. I do recognize that many of the same reforms
implemented by the chief risk officers are now embodied in the
financial overhaul proposed by the administration, but on a
larger scale.
Both efforts seek to improve transparency of over-the-
counter markets, reduce systemic risk and set trading standards
to reduce opportunities for excessive manipulation and
speculation. A key component of both efforts has been the
utilization of clearing to reduce counterparty risks and
allocate capital more efficiently.
My experience reaffirms my strong belief that regulators
are critical to ensuring that markets operate in a fair and
transparent manner. To achieve this, regulators must be
provided with the appropriate authority and tools to respond to
the constant evolution, market behavior and products.
As I stated in the beginning, I am sensitive to the impacts
the financial crisis has had on all families. I understand the
consequences to all of us if the markets are manipulated and
expose our financial system to greater peril. Drawing on my
extensive energy background, I believe I can make a significant
contribution to the Commission.
If confirmed, I will work with the other commissioners to
ensure markets continue to offer consumers and producers a
cost-effective hedge to their commercial risk. I will work to
ensure the CFTC uses all the legal authorities to curb
excessive speculation and prevent abusive trading practices,
including fraud and manipulation.
I would like to thank the Committee for holding this
hearing and considering my nomination. It would be an honor and
privilege for me to serve on the Commission. Thank you.
[The prepared statement of Mr. O'Malia can be found on page
56 in the appendix.]
Chairman Lincoln. Thank you, Mr. O'Malia.
Commissioner Sommers, welcome to the Committee.
STATEMENT OF JILL SOMMERS, NOMINEE TO BE A COMMISSIONER,
COMMODITY FUTURES TRADING COMMISION
Ms. Sommers. Thank you, Madam Chairman, and congratulations
to you on this historic day for you. I would like to take this
opportunity to introduce my husband, Mike Sommers, who is here
with me today. I appreciate his support in being here.
Chairman Lincoln, Ranking Member Chambliss and other
distinguished members of the Agriculture Committee, I am
honored to be nominated by President Obama for another term as
commissioner of the Commodity Futures Trading Commission. I
have been in this position since August of 2007 and it has been
a true privilege to serve the American public as a regulator of
U.S. commodity futures and options markets.
During my career, I have had the opportunity to work on
agricultural issues for Senator Bob Dole, for a regulated
derivatives exchange, as well as for the trade association
representing participants in the privately negotiated
derivatives industry. I believe this unique experience gives me
a diverse view of risk management issues and the knowledge to
help implement our core mission at the CFTC.
The Commission applies a strong regulatory oversight
program that includes market surveillance to detect and prevent
manipulation, as well as ensuring the financial integrity of
the clearing process. This risk tailored approach to regulation
is complimented by strong enforcement, as evidenced by over
$2.8 billion worth of penalties and restitution assessed in
actions brought by the CFTC since the year 2002.
This regulatory regime has enabled the futures industry to
experience enormous growth over the past decade. In 2000, the
U.S. exchange traded volume was a little over 500 million
contracts. In 2009, the volume has increased 180 percent to
almost 3 billion contracts. Even with that growth, the
regulated futures industry did not endure the loss of any
customer funds during the current economic turmoil due to the
failure of a futures commission merchant.
Although the regulated futures exchanges and FCMs have
performed well throughout the financial crisis, there is
widespread belief that the CFTC's regulatory authority should
be extended to cover the trading of over-the-counter
derivatives. There is broad consensus that more transparency
must be brought to these markets.
The current commission is unified in support of
comprehensive regulatory reforms, including full regulation of
over-the-counter markets. This regulatory framework would cover
both the OTC derivatives dealers and the OTC derivatives
markets in which they trade.
I believe that we need to enhance transparency and close
gaps to improve the regulatory structure. The CFTC has
undertaken a number of initiatives over the past year to
strengthen our regulatory oversight and enhance public
confidence in the markets we regulate.
Under the leadership of Chairman Gary Genzler, we have held
hearings to review the application of and exemptions from
position limits. We have convened unprecedented joint meetings
with the Securities and Exchange Commission to discuss issues
of regulation, harmonization and finally, we have implemented
two new transparency measures by further disaggregating our
Commitments of Traders report and publishing an updated report,
Index Investment Data, based on the information we have been
receiving through our special call authority.
It is a very challenging time for the Commission and the
questions surrounding all of these issues are enormously
complex and require thoughtful resolutions. As a commissioner
at the CFTC, I believe there is a historic opportunity to
reshape the regulatory oversight of financial markets.
If confirmed by this Committee and the U.S. Senate, I will
work hard to ensure that the CFTC continues its role of
protecting the integrity of the markets while addressing the
concerns about the regulatory structure. It is the
responsibility of the Commodity Futures Trading Commission to
defend the crucial risk management and price discovery
functions for American farmers, ranchers, end users and all
market participants around the globe.
Thank you.
[The prepared statement of Ms. Sommers can be found on page
61 in the appendix.]
Chairman Lincoln. Thank you, Commissioner. We will start
our 5-minute round of questioning and I will kick that off and
then kick it over to my colleague, Senator Chambliss.
But first of all, Mr. Chilton, you have been an outspoken
proponent for changes to our current regulatory system. Do you
believe that the Treasury proposal regarding the OTC or the
over-the-counter derivatives is sufficient to address these
regulatory gaps, and if not, what needs to be done to improve
upon the Treasury's white papers?
Mr. Chilton. Thank you, Madam Chair. Yes, I do believe the
Treasury proposal is a good proposal. Right now we can't see a
whole segment of the market and it does impact price on the
regulated exchange, so we are sort of operating with one eye
closed.
My view used to be that I wanted to get the information
from OTC and then make a determination as to whether or not it
was price discovery and we should regulate it. Now I think it
needs regulation. Contrary to some of my colleagues and to some
senators, I am not 100 percent sure that we need to look at
every individual bilateral trade.
Should I care as a regulator about a relationship between a
contract, for example, between a farmer and a co-op? I guess if
we had unlimited staff that might be interesting, but I am more
concerned with the large trades that can impact price and for
me, it is really important that whatever we do, if we do
something on position limits, that we keep that in mind.
I am not suggesting that we need to get the regulatory
authority to oversee the OTC market before we act on position
limits, but we definitely need to be thinking about it in a
panoptic fashion to ensure that we are making the right
balanced and appropriate calls.
Chairman Lincoln. If the Treasury proposal were to pass
this year, what would be the greatest challenges for the
Commission?
Mr. Chilton. Well we got a big staffing challenge in
general and I do want to thank the Congress, particularly those
that are appropriators also, for helping us out a lot. The SEC
has about 3,500 folks. We have about 500 folks.
The market capitalization, the CME group, is larger than
the New York Stock Exchange, so we are doing a lot with a
little. You know how things work in Congress; you get the
authority then you get the people to do it. So there is always
that gap 8 months after you pass something, then we are up here
explaining why we have not implemented it yet.
So I think the biggest challenge will be actually getting
the bodies on the ground to do the work. But I am confident we
can do it. We have a great leader in Chairman Genzler and I am
sure we can make steadfast progress.
Chairman Lincoln. Ms. Sommers, Commissioner Sommers, I want
to thank you for the work that you have done on the Commission
as well. You might, if there is any of those two questions that
you would like to comment on in terms of the Treasury's
proposal and what you all need most over at CFTC, and then also
you might just touch on the career you have had working with
both the Chicago Mercantile and the International Swaps and
Derivatives. Any of the roles that you had there both with CME
and ISDA, how that experience really informed you or informed
how you approached the work you do as a regulator.
Ms. Sommers. Thank you, Madam Chair. I agree with Bart and
believe that the Treasury proposal includes much needed
regulatory reform for our financial markets. Two of the main
issues included in the Treasury proposal would give the CFTC
jurisdiction over the OTC derivatives dealers and markets,
along with other regulators, would bring regulation to those
markets. It also includes encouragement for central
counterparty clearing, which is very important. It brings
market discipline and the daily market to market to those
transactions.
So I think both the clearing and that jurisdiction is
important for us. My experience from both the regulated
exchange environment, as well as the experience I have had with
the swaps industry, I think is especially important right now.
I do support the Treasury proposal's inclusion of jurisdiction
over those OTC markets, and I believe for the CFTC to be able
to bring transparency to the public about the markets that we
regulate we need the transparency from those markets.
Chairman Lincoln. Great. Mr. O'Malia, just briefly, you did
spend, and you mentioned in your opening statement that you
spent part of your career working with Mirant Corporation, of
course, at a very difficult time in California, and I know
there have been recent news articles describing Mirant as an
energy supplier and trading outfit that may have contributed to
some of those problems that plagued California; would really
like to just hear from you.
I think you have great--I believe that you have valuable
experience and great experience to be able to bring to the
Commission. Would like to ask you to--maybe you would give us
an opportunity to discuss the commitment to the Commission and
the mission of the Commission in protecting these markets.
Mr. O'Malia. Absolutely. The California experience, my time
at Mirant, was an important lesson. It was a painful lesson for
obviously Western energy markets and consumers of California.
Many companies were--went into bankruptcy as a result of the
markets and it was clear that manipulative trading behavior was
employed to take advantage of those markets.
The rules were not right and that exposed the weakness to
it. There was not adequate oversight and there was not adequate
regulation. I bring that experience to this position and with
my eyes wide open and vow never to allow those type of
behaviors to begin or occur in those markets and any of the
markets.
I think the discussion about the financial overhaul is
consistent with many of the reforms the industry tried to make
when it was clear that changes had to be made. There was lack
of confidence. There was manipulative behavior and they had to
put a stop to that. We need to continue those and strongly
enforce those.
There is no room for manipulative behavior in any of our
markets and I will ensure that I will be very effective and
enforceful of those efforts. The Treasury proposal would expand
oversight of OTC markets where there was no oversight and we
should encourage the use of clearing houses. As both
commissioners, it brings a spotlight on it. It reduces systemic
risk and everybody has a clear picture of what is going on in
those markets and that is very important to see what is going
on in those markets.
Chairman Lincoln. Great. Thank you. Senator Chambliss.
Senator Chambliss. Thank you, Madam Chairman, and I would
first like to ask that three letters in support of Mr.
O'Malia's nominations from Senators Murray, Bingaman and Dorgan
to you and I be submitted into the record.
Chairman Lincoln. Without objection.
[The information referred to can be found on pages 213-215
in the appendix.]
Senator Chambliss. Mr. Chilton, I appreciate your comments
relative to position limits and as you know, I have had a
serious concern about what a change in position limits will do
relative to not just our domestic market, but the reaction that
we might have overseas.
I understand that Chairman Genzler was in Europe last week
discussing the need to harmonize a new structure for over-the-
counter derivatives trading, but unfortunately, I have seen
little coverage of the European regulators' interest in
enforcing more stringent position limits and I know we will
talk more about this later. But in fact to the contrary, I note
that Commissioner Dunn recently expressed concern that other
regulators abroad may not see the need to tighten position
limits.
Meanwhile, just the rumor that CFTC is considering tighter
position limits and hedge exemption requirements for our own
exchange transactions has already lead a large exchange traded
fund to seek larger positions in the over-the-counter arena
rather than conduct business on exchange. Certainly that is not
the intended outcome.
You have suggested that we ought to apply aggregate
position limits across OTC in exchange traded positions. But
the proof now exists that large market participants faced with
limitations will seek creative alternatives and I am concerned
it might force them off to exchanges in Europe or elsewhere.
I mean, we may even see other countries develop mechanisms
for trading over the counter. How do you propose that the U.S.
responsibly apply position limits so as to avoid a migration of
markets abroad?
Mr. Chilton. Well let me say I agree with you 100 percent,
Senator, that we need to be very careful how we do this. That
is why I say that whatever we do, we need to do it in light of
the OTC legislation or the regulatory reform legislation that I
hope Congress will consider. It could have the effect, if we
are overzealous regulators of moving it to less transparent
markets or moving it overseas, that would be a perverse impact
to what I think some of us think we need to do.
We have reached the right balance on the ags. As I say, by
and large, they have worked pretty well. I know there are some
issues that both of us share with regard to some of the
specific Ag commodity markets, but by and large, these position
limits have worked well for the ags and I think as long as we
go into this in a balanced and reasoned way, we can do it so it
will not move business off.
That is certainly not something I am interested in. With
regard to the Europeans, I think you are right, they perhaps
have not been as strong, but I can tell you one thing, Gary
Genzler is not a shrinking violet and I know that he has had
some pretty explicit conversations with them. I look forward to
seeing something public from the Europeans.
But I think in general, as regulators, we sort of need to
move in this direction. But we need to be careful, you are
absolutely right, about how we go forward.
Senator Chambliss. Both Chairman Genzler and Secretary
Geithner and I have had conversations about the fact that we
need to bring the Europeans on board. There needs to be some
sort of international standard here and whatever we do with
respect to the proposed changes in the legislation, obviously,
we need to keep that in mind. You guys do not toot your horn
enough, but I think it is an absolutely correct statement to
say that because of the work in part that you all have done at
the Commission from an oversight standpoint, as well as what is
going on at the SEC, even though we have had some mistakes that
have been made, the markets that you folks regulate did not
fail. The markets worked and Lord knows what would have
happened in these tough economic times a year ago if we had
seen the markets fail.
But you all did a good job in providing the necessary
oversight to ensure that there was no failure and you need to
be commended for that.
Mr. O'Malia, over the course of the past few months, we
witnessed a breakdown in the financial system and we have heard
a great deal about systemic risks. While there are certainly a
number of factors that contributed to this situation, many have
blamed the lack of regulation applied to the over-the-counter
derivatives and some have suggested that regulators of
securities and futures need to be authorized to do more.
Obviously we are now tasked with determining what
additional authorities are necessary? Rather than tasking
various regulatory agencies with duplicative functions and
confusing market participants, we should seek to ensure an
efficient coordination among regulators. If confirmed, how do
you intend to work with other regulators, such as the SEC, to
harmonize your respective functions?
Mr. O'Malia. Both the SEC and the FERC are two agencies
that deal with products before the CFTC. I am committed,
obviously, to work with those agencies to harmonize the regs to
the extent we can. The Treasury proposal did have a joint
regulation on mixed swaps.
I think Chairman Genzler did get it right and said we ought
to divide those along the lines of expertise and I would
support his position on that to ensure that we do not have two
regulators trying to solve one problem. Tasking those along the
lines of experience makes sense to me.
Senator Chambliss. Chairman Sommers, you currently chair
the CFTC's Global Markets Advisory Committee and you have
witnessed technological advances leading to a more global
marketplace. Some have criticized this evolution in which
foreign boards of trade now have greater access to U.S. traders
and our U.S. exchanges have greater access to traders abroad.
Could you briefly explain how the CFTC and various foreign
regulators coordinate in order to ensure appropriate oversights
of the markets across oceans and the borders? I was a little
more specific with Commissioner Chilton regarding position
limits and how we are going to deal in this arena with our
overseas traders and you can expand on that, if you will,
please.
Ms. Sommers. Thank you, Senator. As you know, foreign
boards of trade that wish to offer their products to either
U.S. members of their exchange or other U.S. customers must
come to the CFTC to get relief in order to offer those products
to U.S. customers.
We, in considering this relief for foreign boards of trade,
we look at the home country regulator and we look to see if the
regulation applied to that foreign board of trade is comparable
to what we apply in the United States. We also look to
memorandums of understanding that we have signed with their
home country regulator. The CFTC is a member of the
International Organization of Securities Commissions and we
sign a worldwide multi-lateral memorandum of understanding that
creates standards and we use that MMOU as a basis for approving
those foreign boards of trade as well.
And I think as we look forward on the issue of considering
either imposing position limits on our specifically energy and
metals complex or the exemptions from those position limits,
that it is an issue of concern that we continue to work with
our global counterparties to make sure that those are also
issues that they are considering, because I do share your
concern. If we impose those limits without having our global
counterparties in lock step with us, we may have the perverse
effect of driving business to other markets globally and making
our U.S. regulated exchanges less competitive.
Senator Chambliss. My time is up, but there is one other
critical follow-up question I would like to ask you. I know we
have a current relationship with the London Exchange on the
trading, particularly for oil contracts, where they voluntarily
provide us with certain information.
Let me address this to you and Commissioner Chilton. Are
you folks satisfied with the information that you are getting
from the London Exchange on these contracts?
Ms. Sommers. I think, Senator, that that is a perfect
example of how well our foreign board of trade regime has
worked. This year, we have made significant modifications to
our memorandum of understanding with the UK FSA in order to
address that linked contract that is listed on a foreign board
of trade that is priced off a U.S. contract or settles to that
U.S. contract.
We have made modifications to that memorandum information
sharing, as well as with the enforcement authorities, so we do
get large trader data on a daily basis from that exchange, as
well as have other information sharing agreements and
enforcement availability with that agreement.
Mr. Chilton. Yeah, I would echo what Commissioner Sommers
said. I am satisfied. We get it on a daily basis. It is in real
time. It is in the same format. We actually print it in our
Commitment of Traders report, so it is very helpful.
It would not bother me if it is codified. Now it is this
thing we call a no-action process and it is a little
convoluted. As Commissioner Sommers said, we have worked it out
and I think everything is fine now. But I would not mind
having--if we are doing--if you all are doing regulatory
reform, having it codified by a statute. But it is working well
now, Senator.
Senator Chambliss. Thank you.
Chairman Lincoln. Senator Lugar.
Senator Lugar. Thank you, Madam Chairman. Commissioner
Chilton, I think you were present perhaps about a year ago when
we had a hearing of this Committee. On that occasion, we had a
witness that tried to describe to the Committee what was
occurring in the financial crisis.21Anecdotally, you went
through the situation where the local banker was out there
trying to get a lot of the mortgages on the books. Having
collected all these, these were packaged. It was sent on to
another bank, sometimes sold, and folks were out of it
altogether locally, packaged again and moved on somewhere else.
Now finally, at a level of some bank or institution, it had
a lot of these packages. It was explained you go to a place
like AIG to get insurance and you get insurance through
derivatives, let's say. So then we, as amateurs, sort of press,
what kind of derivatives are these? Well some look fairly
straightforward. This is an insurance derivative. But then one
witness add, but you could also express opinions.
And so he said, is this like an opinion poll in addition to
an insurance policy? He said, well not exactly, but for
example, you might bet on the fact that the banking system of
Pakistan was going to fail and as a result, even though it has
nothing to do necessarily with what the flow had been thus far,
if it failed. You might get a payoff, or as some of the other
insurance situations, it might not work out, including maybe
AIG being able to pay you.
This came as a surprise to many members as to what kind of
statement or ink on paper, and so we got into this situation
that these derivative functions are not all ones in which you
know the parties, the party or the counterparty, or as a matter
of fact, we then had, some of us, visits from bankers who said,
now as you begin to think about regulation, do not pin this
down. We need to have a lot of creative space to write these
situations. They are not all the same.
We are talking about clearing not identical contracts, very
different. This is not very reassuring to those of us who are
citizen amateurs of this quite apart, I think, from the
financial community, and we are still, as you pointed out,
although CFTC always was thought of by many as having
agriculture commodities, the financial instruments became very
large in your situation quite apart from the energy situation,
which in the last reauthorization of CFTC somehow got omitted
or had not the same weight.
This is all the beginning of a question. What in the
current CFTC proposals or laws that Treasury is offering, or
anybody is offering, finally brings us into some clearing
function of counterparties where we actually have, even complex
as it is, something that is relatively uniform as opposed to
totally creative in ways that--once again creative bankers,
financial people and so forth, in a search, in our American
free enterprise system for wealth, blow the whole thing out;
can you give us some reassurance?
Mr. Chilton. I can give you some, Senator, although I am
not going to vouch for that entire situation you described,
because I had some of the very same concerns. It was the
Commodity Futures Modernization Act, which codified that we
would not be regulating swaps and these credit default swaps
that you are talking about really metastasized throughout the
banking and the trading community. It would have been difficult
to follow even if you re regulating them, but certainly
unregulated they lead to many of the problems that you
describe, in particular AIG.
It is all hindsight now, but I venture to say that if
credit default swaps were regulated, that may not have
happened. And so I think it is one of the things that you
described, Senator Lugar, that was probably a mistake in CFMA.
In my view, there are many good things in CFMA. It has allowed
the free market to flourish, to be innovative and look around
the corner and be competitive. But that is one of the things
that I think was an inadvertent policy.
The administration has called for regulation of these types
of swaps. It has sort of left the door open.
to who would regulate them, whether or not it would be the
CFTC or the SEC. In my view, as a CFTC regulator, it would be
easy to just say well we should have it. But to be honest with
you, I just care that it is regulated. I just want to make sure
that somebody is looking at this.
We can do it. Again, we need staff to do it. And we can do
a competent job, but I think for American consumers, it is just
important that somebody who comes before you all, or another
committee who is responsible for this type of thing, looks at
it very hard and carefully and always has in the back of their
mind, how are we protecting consumers? How are we protecting
markets?
Senator Lugar. Well this begs then my second question and
that is, perhaps you do not have control of this now or
oversight. Maybe you will. You certainly do have all of the
energy situations and the Ag is a very small part, as you have
said.
Now last year at this same time, the complaint was made
that the staff problems at CFTC, even with what you had, were
totally inadequate in terms of number of people. There were
senators piling on about speculation and all the difficulties
and you and the chairman, what have you, were saying well, give
us some people.
Now you intimate you do not have the people yet. I am
trying to sort of fathom where in the system you get the
people. Have you requested them? Are they in somebody's
appropriation authorization bill or anyone in the stream at
this point?
Mr. Chilton. Yes, sir. We have--I cannot give you the
specific numbers, but I said we were at 500 in my oral remarks.
I think we are going to actually be closer to 600 like today,
maybe 599, and we have a request in for more. I cannot give you
the exact amount, but we are moving forward. We are now at the
Financial Services Ag--or the Financial Services Appropriations
Subcommittee.
But with the support over the years, we have done a lot
better. But as I say, we have a big workload out there and
depending upon what happens with some other issues, for
example, carbon trading, if that ends up passing and we have
that, that could be the largest commodity market, physical
commodity market in the world.
And so I appreciate the question and appreciate the
support, Senator, and we are going to continue to need it as we
go through the appropriation cycle. But we have requested it so
far and I think we are moving in the right direction.
Senator Lugar. Thank you. Thank you.
Chairman Lincoln. Senator Cochran.
Senator Cochran. It occurs to me, Mr. Chilton, listening to
your testimony and expression of concerns about the inadequacy
of the power or authority of the CFTC, that you are making an
argument for additional definitive powers and responsibilities
that would be defined by Congress and enacted so that you could
do the things that you are saying ought to be done.
Is there an issue now between this agency and other
agencies or departments of the government where they are also
seeking that kind of definitive acknowledgement of power and
responsibility? What is the state of play in the definition of
legal authority?
Mr. Chilton. Well with regard to what Senator Lugar was
asking with regard to clearing and swaps, particularly credit
default swaps that were $55 to $60 trillion, I mean just a
monstrous number, the SEC is also interested in that and really
I think the administration deserves to be commended by coming
out with such a strong proposal and doing it fairly on.
But in all candor, they punted on the question of whether
or not it was going to be the jurisdiction of this Committee or
the Banking Committee and again, it would be easy to say turfs,
that we should do it here, but as long as it is done. And so I
will leave those important decisions to you and other senators.
Senator Cochran. That is reassuring, and that you are not
about to go out and start regulating and start bringing in
people and start finding violations of the law as a commission,
as an administrative body, without the color of that authority.
Mr. Chilton. Yes.
Senator Cochran. You do not have that in your background as
an inevitable conflict that you are going to have if you are--
--
Mr. Chilton. No, I do not, Senator. I mean, I think there
are some things we can do through the rulemaking authority with
regard to position limits and hedge exemptions, but again, we
need to do that with a view toward the unregulated markets and
we need to do it, as I was discussing with Senator Chambliss,
in a way that does not send markets--it does not send current
regulated traders to unregulated markets or does not send them
overseas.
So we need to be very careful about this, but my colleagues
are smart folks. We are going to get this right. We are going
to do the same types of things that you all do every day and
make sure that we are not losing markets and make sure that we
are protecting consumers.
Senator Cochran. Well, do not use us as a role model.
Mr. Chilton. I know you too well, Senator. You have done a
lot of good work over the----
Senator Cochran. Individual senators are different from the
body as a whole.
[Laughter.]
Senator Cochran. Thank you very much for agreeing to serve
in these positions. This is going to be a very challenging
period, I think. I think the Committee will do well to follow
very closely how all this plays out. Thank you.
Chairman Lincoln. Be assured, Senator Cochran, we will be,
as a Committee, following very closely in terms of what the
responsibilities--and you are right, it is a tall order at this
juncture in our economy and in the world economy, so we will
definitely be following closely.
Senator Thune.
Senator Thune. Thank you, Madam Chair, and congratulations
to you on your historic accomplishment, first woman and first
Arkansan as the chairman of this great Committee. Your style
and approach to dealing with issues will serve this Committee
and its members and the entire Senate very well, so
congratulations and just do not forget about us northerners up
there. We will bring you up to South Dakota to give you a
chance to visit somewhere soon.
Senator Cochran. We learned our lesson.
[Laughter.]
Senator Thune. All right. On a more serious note----
[Laughter.]
Senator Thune. Let me, if I might, just pose a question to
whomever, maybe to Commissioner Chilton to start with. But if
the Congress were to require mandatory reporting for all OTC
transactions, what additional resources would the CFTC need to
manage such a large amount of data? And maybe Commissioner
Sommers could answer.
Mr. Chilton. I do not have an exact number, Senator Thune,
but it seems to me that, as I said, 3,500 or thereabouts with
the SEC, 500, 600 at the CFTC. I would like to see us up in the
700 full-time equivalent positions in the not too distant
future, and that is without anything with regard to carbon.
So we could use another 100 people sort of pdq and I think
we need to continue to request more and ramp up. You know,
there is a limit to how large we should get certainly. We do
not want to be overly bureaucratic, but right now, as Senator
Lugar described, we have a lot of challenges that we just are
not up to, and it is not because we do not have dedicated and
resourceful and professional staff; we do.
Senator Thune. Anything to add?
Ms. Sommers. Senator Thune, I think we have to continue to
consider that the OTC markets are large and they are very
complex and they are markets that the CFTC does not have
experience in regulating. So it is something that will be an
enormous task for us.
But as Commissioner Chilton noted, we have hired, I think,
almost 100 people over the last year and if things progress the
way that we hope with the budget this year, we will be able to
do the same next year, and that will be very helpful for us,
not only with actual bodies on the job, but with advances in
technology to help us survey all those markets as well.
Mr. O'Malia. Senator, if I may, the people are important.
Working in the appropriations, we have had the opportunity to
work with our national labs and see what technology can do for
us, specifically world class computing. It seems to me we
also--there is a technology element that we have to stay ahead
of the markets, or at least keep up with them. The investment
in that category has been woefully inadequate.
We really need to focus on taking advantage of the high
speed global nature of these markets and avail ourselves to the
technology. If confirmed, I would be happy to take that effort
on to find out what opportunities we can do to keep up. Keeping
up would be a good start.
Senator Thune. One of the--if climate change legislation
were to pass, it would allow third parties like banks and
foreign nations to participate in the carbon market. In other
words, you would have third parties that are not directly
associated with carbon. Offsets would be able to purchase these
credits on an exchange.
In your opinion, does that leave the carbon market open to
undue influence or manipulation and is it possible under a
scenario like that that a third party investor or group of
third parties would be able to drive up the price of carbon by
purchasing large amounts of allowances or available carbon
credits?
Mr. Chilton. It is a concern that has been raised
particularly recently in the last several months that I have
heard. You know, we have, like I say, professional staffs. I
think we can do the regulation of this, as long as we have the
authority.
Some have argued that the smaller the markets, the easier
it is to regulate and while that is true, I would rather have
deep liquid markets with lots of trading and you go back and
forth between people at the agency center. Some will say it is
just another contract. It is just like crude oil.
It has its distinct difference in that the government
would, under the legislation proposed, actually control the
allocation. And so that is different. But by and large, I am
not worried about the size of it as long as we have the
resources to police it. I think we can do a good job. And as I
say, I think it can have an enormous benefit not just for
whatever it can do for the environment, but I think it can add
to the economic engine of our democracy, and that is not a bad
thing.
Senator Thune. What role would you see speculators playing
in a carbon market and how would you define a speculator? How
would you define excessive speculation?
Mr. Chilton. Right.
Senator Thune. I mean how would you go about----
Mr. Chilton. I like speculators. Too often I think
speculators get branded as sort of a dirty word. We are going
to need people involved in these markets to ensure that they
work and I think if you only have commercial participants, the
markets will not function as efficiently or as effectively as a
lot of us would like.
But we will need to be careful to ensure that there may
be--it may be appropriate for example, to put certain limits.
Just like we were discussing position limits in the energy and
metals complex, I think that is probably appropriate for
carbon, to avoid the very things you are asking about.
Senator Thune. Mr. O'Malia, you are the new guy. What do
you think about derivative products being forced onto regulated
exchange?
Mr. O'Malia. We do--the administration has put out a very
comprehensive proposal and I believe the transparency and
reporting requirements to move more of these products into
regulated markets is an important move. Increase, avail
ourselves to clearing would be critical, but we do not want to
shift everything--standardize everything for the sake of
standardization.
We need to make sure that these actually pose a risk of
manipulation or threat and that they could impact the overall
pricing of commodities. And I agree with those principles. More
trading on regulated markets would be helpful. We will be able
to see it. We will have clear--it will be priced to the market.
They will understand it better and it will be more useful.
Clearing reduces risk and that is helpful. We do not want
to make this too costly, however, to make sure the people--
everybody who has commercial risk cannot use these. They have
to be available.
Senator Thune. Commissioner Chilton, Commissioner Sommers,
what reaction have any of you received from market participants
about the administration's proposal to impose capital
requirements on dealers of OTC derivatives?
Ms. Sommers. Senator, I think that the capital requirements
provisions that is in the Treasury proposal is consistent with
the capital requirements that we look at in the futures
markets. We are also moving forward in the futures markets to
impose additional capital requirements on the FCMs in our
markets to make sure that is part of our job, to make sure that
that risk surveillance and part of what an FCM has in the
clearing process is adequate and it is something that we are
very mindful of. I have not heard any of the dealers or market
users express any concerns about this.
Mr. Chilton. I agree with Commissioner Sommers and only
echo what some of the other senators said and that is that
these markets really were not at the heart of the credit crisis
and the recession, and you all should take great pride in that.
I mean, we have worked pretty well. This is just a good
time for us to think about other sideboards that we may need to
put on the law and rules and regulations where appropriate to
make sure we continue down that path.
Senator Thune. Madam Chairman, thank you and I would like
to be able to be here for our next panel. I want to hear Mr.
Avalos tell us how he is going to get the Ag community united
on animal I. d., but I probably will not be able to be around
for that.
So thank you all for your willingness to serve, of all of
our nominees today, and thank you, Madam Chair.
Chairman Lincoln. Thank you, Senator Thune. Do any of you
all have additional questions for this panel?
Well before I dismiss them, I would like to--one last item
for the nominees. As you know, Senator Cantwell has played a
leadership role in the Senate with regard to commodities
futures regulation and has some questions that I will be
submitting for the record.
I know all of us look forward to your responses there and
you will have ample time to be able to respond to that and to
Senator Cantwell's questions. So thank you again. I echo the
words of my colleagues. Thank you for offering yourself in
terms of public service. We have a lot of challenges ahead of
us.
We are going to be looking to the CFTC for great guidance
and opportunities to really grow our economy, but do so in a
way that minimizes risk and certainly ensure confidence in the
American public. So we appreciate your being here today and we
appreciate your willingness to serve.
We will excuse this panel and we may ask the--invite the
second panel to come before us.
Senator Chambliss. Madam Chairman, while this panel is
coming up, let me just recognize one of my staff that you know
well whose probably last hearing is going to be today. Vernie
Hubert has been a member of my staff the whole time I have been
here in the U.S. Senate and I first got to know Vernie when he
worked for a Democratic congressman----
Chairman Lincoln. I did too.
Senator Chambliss.--Charlie Stenholm, who was such a great
advocate of agriculture. I had the pleasure of working with
Vernie on both the 1996 Farm Bill and the 2002 Farm Bill and
then obviously this past year over here. Vernie has just been
such a great asset to the Committee for so many reasons and a
particular asset to my staff because of his knowledge of
agriculture, his commitment to ensuring that we do the right
thing for farmers and ranchers.
He is a guy that we are truly going to miss here. I did not
want to let today go by. We have encouraged him and drug him
back over here. I would not let him go home last year as soon
as the Farm Bill was completed and he has graciously agreed to
stay on here this past year. I just want to recognize Vernie as
a true asset both to me and to the Committee and particularly
publicly to thank him for his service.
Chairman Lincoln. Well, Senator Chambliss, I would like to
join you in that and I too first met Vernie when I was in the
House. I would say that his leaving at this juncture is subject
to the discretion of the chair.
[Laughter.]
Chairman Lincoln. So I do not know, but if I am going to
exert any powers, this might be the place to do it.
Mr. Hubert. Can I have you talk to my chairman?
[Laughter.]
Chairman Lincoln. Well we do appreciate the incredible work
that Vernie has put forward on behalf of American agriculture
and he has done a tremendous job. All I can say is, please do
not go. But we are grateful to him, and grateful to him and
grateful to you, Senator Chambliss, for having him on board. He
was an enormous part of the negotiations that we had on the
Farm Bill and was a real calming effort there and did a
tremendous job of pulling people together and we appreciate it.
So I am still going to reserve my right as chairman to have
a say in that, but anyway, I know your chairman and I know she
will trump me, so nonetheless.
If I can ask this panel to please stand. I am not sure if
we all got the swearing in, but I am not going to mess it up on
my first watch, that is for sure. If you will raise your right
hand.
Do you swear to tell the truth, the whole truth and nothing
but the truth?
Mr. Avalos. I do.
Mr. Sherman. I do.
Mr. Spearman. I do.
Chairman Lincoln. Great. Our mandatory question, do you
agree also that if confirmed you will appear before any duly
constituted committee of the Congress if asked?
Mr. Avalos. Yes.
Mr. Sherman. Yes.
Mr. Spearman. Yes.
Chairman Lincoln. Great. Thank you. Thank you, gentlemen,
for joining us today. We appreciate it and appreciate your
willingness to also serve. We would like to begin by your
statements, if we may, and then we will enter into our
questioning.
Mr. Avalos.
STATEMENT OF EDWARD M. AVALOS, NOMINEE TO BE UNDER SECRETARY OF
AGRICULTURE FOR MARKETING AND REGULATORY PROGRAMS AND MEMBER OF
THE BOARD OF DIRECTORS, COMMODITY CREDIT CORPORATION
Mr. Avalos. Chairwoman Lincoln and ranking member.
Chambliss, members of the Senate Committee on Agriculture,
Nutrition & Forestry, thank you for the opportunity to appear
before you today.
Chairwoman Lincoln, I also would like to congratulate you
on your new assignment to chair this Committee. I know that the
folks back in Arkansas are really proud of you.
Chairman Lincoln. Thank you.
Mr. Avalos. And also, this being your first hearing for
this Committee where you are in the leadership, I am honored to
be a part of this historic event. I am extremely grateful to
President Obama for nominating me and Secretary Vilsack for his
support.
If I can, Madam Chair, I would like to introduce members of
my family.
Chairman Lincoln. Please do.
Mr. Avalos. I think I am going to read it, and then they
can just--anyway, I have my better half, Anna Bee, from
Mesilla, New Mexico; my daughter Alexandra and her fiance, Tom.
They are from Long Beach, California. My daughter Megan and her
fiance, Mark, from Phoenix, Arizona; and of course, my son, he
is my fishing and hunting buddy, Russell, from Las Cruces,
Mexico. I also have quite a few friends that came all the way
from Las Cruces, well actually from all over New Mexico, to be
here with us.
Chairman Lincoln. That is wonderful. Please stand so we can
welcome you to the Committee.
[Applause.]
Chairman Lincoln. That is quite a cheering squad.
Mr. Avalos. I almost have a basketball team.
Chairman Lincoln. That is right.
Mr. Avalos. Madam Chair, members of the Committee, it
really is an honor to be nominated to serve as the under
secretary for marketing and regulatory programs at the U.S.
Department of Agriculture. The mission includes the
Agricultural Marketing Service, the Animal and Plant Health
Inspection Service and the Grain Inspection Packers and
Stockyards Administration.
Each of these agencies are extremely important and
contributes to benefit the agricultural industry all the way
from the producer through the shipper, the processor, the
retailer and on to the consumer.
I grew up on a family farm in the Mesilla Valley in
Southern New Mexico. At an early age, my parents, Adolfo and
Eva Avalos, they instilled a very strong work ethic which I
have followed through my entire career. My 30-plus years of
experience in agricultural marketing have prepared me for my
role as the under secretary. I have worked with the
agricultural industry to address regulatory, marketing,
production and other issues and challenges in both the national
and international arenas.
I am a firm believer that the U.S. agricultural sector has
been and continues to be the backbone of this country,
providing food and fiber to consumers and end users in the U.S.
and also in markets all over the world. During my career, I
gained considerable experience in both the international and
domestic arena. I have worked to support the production and
marketing of livestock, specialty crops, value added products
to the implementation of trade missions, dialog and promotion.
Also I have worked with diverse stakeholders to develop and
establish and maintain markets for sheep, cattle, goats and
numerous fruits and vegetables in Mexico, onions and processed
foods to Canada, and most recently, the pecan growers' success
in creating an export market in China.
In the domestic arena, I have been very successful in
establishing markets for chili peppers, onions, potatoes,
watermelons, pumpkins, pecans, beans and alfalfa. I have worked
closely with producers to support the production of crops that
the industry demands. I worked with the distributors for timely
delivery of goods and with retailers to showcase, promote,
sell, educate and inform the consumer utilizing brochures,
recipes and other promotional and educational tools.
In addition, I have worked to advance Indian agriculture,
including working closely with the Navajo Agricultural Products
Industry. This is an 85,000-acre farming enterprise located on
the Navajo Nation in the four corners area of New Mexico and
with some of the Indian pueblos in Northern New Mexico to bring
back traditional agriculture to their tribes.
I believe it is important to create an atmosphere of
collaboration and foster good communication through agriculture
production. I am enthusiastic about opportunities to promote
fresh and local availability of products, more farmers markets,
trade organizations and better connecting the American public
with their food supply.
As a result, I have established an effective and
informative network of growers, shippers, trade organizations
and other stakeholders throughout the country. I have worked
closely with the North American Agricultural Marketing
officials, the National Association of State Departments of
Agriculture and the Western United States Agricultural Trade
Association. This network provides me with needed input on
issues and trends within the food, agricultural and livestock
industries.
If confirmed as the under secretary for marketing and
regulatory programs, I will emphasize providing oversight of
the three agencies and addressing the concerns of agricultural
boards and commissions. If confirmed, I look forward with
enthusiasm to stimulating employee morale and working with the
many fine public servants which are assigned to my area, as
well as the other agencies within USDA.
I am strongly committed to civil rights at the department
and will work hard to ensure USDA's employment practices will
not tolerate any form of discrimination, but instead will
create a positive environment that celebrates and draws upon
the strength of USDA's diverse workforce and consumer base.
If confirmed, I am committed and dedicated to working with
Secretary Vilsack and this Committee to address and resolve the
many concerns and difficult issues that are facing the food,
agriculture and livestock sectors of this country. Building on
my experience with the farmers, with the ranchers, dairymen,
with the shippers and brokers, the food processors, the
distributors, retailers and consumers, I will provide the
leadership and guidance needed to implement the Farm Bill and
carry out the mission of USDA.
Thank you for your consideration and I am happy to respond
to any questions.
[The prepared statement of Mr. Avalos can be found on page
48 in the appendix.]
Chairman Lincoln. Thank you, Mr. Avalos.
Mr. Sherman.
STATEMENT OF HARRIS D. SHERMAN, NOMINEE TO BE UNDER SECRETARY
OF AGRICULTURE FOR NATURAL RESOURCES AND ENVIRONMENT AND MEMBER
OF THE BOARD OF DIRECTORS, COMMODITY CREDIT CORPORATION
Mr. Sherman. Thank you, Madam Chairman. It is a great honor
to be here before this Committee today considering my
nomination for the position of under secretary for Natural
Resources and the Environment. Let me add, Madam Chairman, to
the chorus of congratulations to you. I very much look forward
to working with you and all of the members of the Committee.
I want to thank my senator, Senator Bennet, for his very
kind words of introduction. He is doing a wonderful job with
our national forests and our conservation programs, so I
appreciate his kind words. And although I brought a somewhat
smaller cheering section for me, I wonder if I could introduce
my family.
My daughter, Jessa Sherman, from Los Angeles; my brother,
David Sherman, from Denver; my sister Barbara Kailey, from
Denver; and my niece, Shawn Kailey Reagan, from Los Angeles. If
you could all stand up.
[Applause.]
Mr. Sherman. Several weeks ago when I received the news
that President Obama had nominated me, I was deeply humbled by
the honor, but also by the degree of responsibility that
accompanies the position. I fully realize that the challenges
ahead will not be easy, but it is an extraordinary opportunity
to do good for our country.
If confirmed, I promise to use my strengths, energy,
commitment and good judgment to advance the conservation and
public land programs that will fall under my jurisdiction and I
promise to work closely with you and the other committees of
Congress as we go forward.
My interest in overseeing the Forest Service and NRCS stems
from a lifetime of experiences with public lands and
conservation programs. As a child, my parents took me to the
mountains outside of Denver where we would camp, hike, fish,
ski and jeep. These experiences left an indelible impression on
me of the grandeur and the importance of our national forests.
Later I have twice had the privilege of serving under two
Colorado Governors, Governor Richard Lamm and Governor Bill
Ritter, as the director of the Colorado Department of Natural
Resources and I have had the opportunity of working on a daily
basis with the Forest Service and other Federal land management
agencies on very interesting, complex resource issues. Between
these two stints as DNR director, I have represented as an
attorney both public and private sector clients in their
dealings with Federal land management agencies.
These experiences, combined with earlier work I did with
the State Soil Conservation Service, and my later work with
many land trust conversation organizations, have given me a
background that I believe will serve me well in this new job.
Looking forward, there are tremendous challenges regarding our
forests, both Federal and private, and the conservation
programs associated with farms and ranches throughout the
country.
On the forestry side, many forests are in trouble due to
past fire suppression, increase in fuel loads and changes to
our climate. As a result, many forests are far more vulnerable
to catastrophic fire, disease and invasive species, often in
epidemic proportions, such as the situation that we face in
Colorado where we have several million acres of dead trees due
to Pine Beetle kill.
We are witnessing far more frequent, intense fires.
Combining these factors with a growing human population influx
within or adjacent to our public and private forests, it is
clear that we have a very challenging situation ahead. How we
protect our growing communities from fire danger, how we
protect the watersheds within our forests that supply drinking
water to much of our population, how we protect wildlife
species that rely centrally on these forests, and how we ensure
that our forests play a critical role as carbon sinks is a
herculean responsibility.
I believe that Secretary Vilsack's emphasis on restoration
of our forests, both Federal and non-Federal, in a manner that
addresses climate change, environmental protection, identifies
new markets for wood products, creates jobs and sustains rural
communities, provides an excellent framework for moving
forward.
It is also important that we take a holistic approach to
land conservation. On the NRCS side of the ledger, I have much
to learn, but I am very excited by the mission and the scope of
the agency's charge. Conservation of private working lands
plays a significant role in protecting water resources and
wildlife habitat, creating jobs and providing economic
opportunities for rural America.
NRCS's watershed protection program helps communities from
floods like those that we have just seen in Georgia. With these
comprehensive programs, on the ground expertise and powerful
technical tools, NRCS is well positioned to help private
landowners play a significant role in addressing a variety of
the nation's conservation challenges.
So in closing, let me just say, together the Forest Service
and NRCS can make a major difference. Never before have
agriculture and forestry been more at the forefront of current
national policy issues. This is an urgent time to make
progress. I am excited by the prospect of devoting my energies
to these tasks.
I promise you that if confirmed, I will undertake
collaborative efforts involving appropriate stakeholders to
find common sense solutions and to come up with answers that
will withstand the test of time, becoming durable, long
standing and reliable programs. Thank you, Madam Chairman.
[The prepared statement of Mr. Sherman can be found on page
59 in the appendix.]
Chairman Lincoln. Thank you, Mr. Sherman.
Mr. Spearman.
STATEMENT OF KENNETH ALBERT SPEARMAN, NOMINEE TO BE MEMBER OF
THE FARM CREDIT ADMINISTRATION BOARD, FARM CREDIT
ADMINISTRATION
Mr. Spearman. Thank you, Madam Chairman Lincoln and Ranking
Member Chambliss and the distinguished members of the
Committee. Senator Lincoln, congratulations on assuming the
chairmanship of the Committee. I look forward to your
leadership and working with you and Senator Chambliss and this
Committee for the betterment of American agriculture.
I also want to thank Senator Nelson for his kind and
generous introduction. He serves my home state of Florida in
the U.S. Senate with honor and distinction. If confirmed, I
will keep the trust of his example of public service to our
country.
It is a privilege to appear before you today as President
Obama's choice to serve as a board member of the Farm Credit
Administration. This is a special honor for me and I am honored
that my family also is here to share it with me. We all achieve
success in life with the help of others. I am no exception, so
I especially want to acknowledge my wife, Maria, my twin
daughters, Michelle Springs of Orlando, and her sister,
Rochelle Puccia, of Los Angeles, and my son, Dr. Kenneth
Spearman, of Long Branch, New Jersey.
Chairman Lincoln. Please stand so we can greet you.
[Applause.]
Mr. Spearman. It is indeed an honor to be nominated to this
prestigious position. I would like to share my background and
tell you about the skills and experience I would bring to the
Farm Credit Administration Board should the Committee confirm
my nomination.
As an accountant, I was involved with the development of a
public accounting firm in Chicago, Illinois and later worked as
an accountant for a major accounting firm. From 1980 to 1991, I
served as controller of the Citrus Central, Inc., where I was
responsible for the financial management and reporting for this
$100 million agricultural cooperative.
Until recently, I was director of internal audit for
Florida's Natural Growers, Inc. There I was responsible for the
design and implementation of the annual plan, which was used to
appraise the soundness and adequacy and application of
accounting, financial and internal operational controls.
I currently serve as an independently appointed outside
director on the board of AgFirst Farm Credit Bank, a position I
have held since January 2006. As you can see, my professional
history, most of my career has been spent working for
agricultural cooperatives. During my 28 years in the citrus
industry, I gained a deep appreciation for agricultural
producers and production agriculture.
As the members of the Committee are well aware, production
agriculture, particularly Florida's citrus industry, is capital
intensive and heavily reliant on access to a competitive
credit. Add in the variables of the marketplace, world events,
weather and many other unforeseen factors, and one can see that
agriculture is a risky business.
Americans, and for that matter, people around the world
should be thankful for the men and women who produce the food
and fiber that we enjoy daily and without which we could not
survive. As I said, production agriculture is very capital
intensive. Land costs, labor, equipment and fertilizer require
long-term and short-term financing. It takes a variety of
lenders to meet the credit needs of agricultural producers and
their cooperatives.
The Farm Credit System, which is regulated by the Farm
Credit Administration, is a very important part of that
coalition of lenders required to finance American agriculture.
Serving as an outside director of the AgFirst Farm Credit Bank
board has given me a new and greater appreciation for the
complexity and importance of agricultural and rural finance.
I believe my 28 years of financial experience working for
agricultural cooperatives will serve me well as a member of the
board of the Farm Credit Administration. I would utilize that
expertise to ensure the safety and soundness of the Farm Credit
System so that it continues to serve the credit needs of
America's farmers, ranchers and their cooperatives.
In closing, I would like to thank the Committee for the
important role it plays in the oversight and authorization of
the Farm Credit System and its mission to meet the credit and
related services needs of America's farmers and rancher.
That concludes my statement and I will welcome any of your
questions. Thank you.
[The prepared statement of Mr. Spearman can be found on
page 63 in the appendix.]
Chairman Lincoln. Thank you, Mr. Spearman. I also note that
we have another of the FCA board members here with us today,
Nancy Pellett. Hey Nancy, welcome to the Committee. We look
forward to working with you.
Just a few questions for this panel, if I may. Mr. Sherman,
this administration is committed to reducing our dependence on
imported oil and natural gas, coal-fired power plants in this
country for our energy. Biomass can be converted into energy
and fuel, reducing our dependence on fossil fuels and certainly
our carbon footprint.
What role do you see USDA and the Forest Service playing in
this new initiative, and as under secretary, how will you
expedite the decisionmaking and the other processes necessary
to get the expected results in a timely manner?
Mr. Sherman. Senator, I think both the Forest Service and
NRCS have a very important role in exploring the possibilities
of biomass to deal with the country's energy security.
Obviously our forest products are potentially a form of energy
that can be used to provide for heating materials, potentially
for electricity, for fuels and I think the Forest Service
clearly owes it to itself and the constituencies it works with
to actively explore how we can use these materials to provide
for potential future energy resources for the country.
And I think the same goes for NRCS. Clearly, there are all
kinds of opportunities with our private forest lands and with
the crops that we are growing in this country to address
potential markets and opportunities. These are great for
conservation. I think they are terrific opportunities for jobs
and for rural development. If I am confirmed, I will work very
diligently in this effort.
Chairman Lincoln. I appreciate that and I hope that you
will continue to share your vision of how NRCS and the Forest
Service can work together to really provide the kind of--
private forest landowners with the assistance they need in
managing their lands and certainly in terms of the
decisionmaking. I know it--often times it definitely takes
time, but sometimes expediting that can really be a big help.
I am also from a rural state and a primary concern of mine
is the state of rural forested counties. In 2008, we
reauthorized the Secure Rural Schools in Communities Act, which
helped provide critical funding for schools, roads and forest
management that contributed to strengthening the economies of
these rural communities.
If authorization expires at the end of 2011, the funds for
schools and counties will drop by more than 50 percent, which
could be devastating. We had here, well a group meeting
yesterday of rural educators basically, but the foresight of
that would just be devastating to many of our rural schools
across the country. This would be a huge blow to those
communities.
Are you familiar, Mr. Sherman, with the SRS and do you
support its reauthorization?
Mr. Sherman. Madam Chairman, I am not familiar with this
program yet, but I promise you that I will become familiar. If
I am confirmed I will look into it actively and I will get back
to you on that.
Chairman Lincoln. Please do. There is a disproportionate
share of our children in this country that do attend rural
schools and certainly that combination of what the Forest
Service and others do in those counties and how it affects
those schools and the ability to educate our children in rural
areas of the Nation is really, really critical.
Last, just maybe you might share with us your experience in
Colorado developing the state's roadless rule and how that
might affect your handling with that issue nationally?
Mr. Sherman. Well first of all, let me just reemphasize my
personal commitment to protection of the country's roadless
areas. This is an extremely important asset to our current
generations and to future generations in the United States. As
a personal matter, I believe very deeply in the importance of
this resource going forward.
I do want to say that because I was involved in the
preparation of a Colorado roadless petition under the
Administrative Procedure Act, in my discussions with USDA
officials, I think it is appropriate for me to take myself out
of consideration of reviewing and rule that I helped to
prepare.
So I am sure that the secretary will designate someone else
in the department to review the Colorado petition as it comes
forward. But the president has stated his very clear desire to
protect roadless areas in this country. Secretary Vilsack has
as well. I am anxious to sit down with the secretary and his
staff to review what strategies and what approaches they will
be using going forward.
I have not yet had that opportunity, but I am looking
forward to that and if this Committee wishes to talk further
about that after I have had these briefing opportunities, I
would be happy to come back and discuss it with you.
Chairman Lincoln. Thank you. We look forward to many
discussions. Obviously, as under secretary of agriculture for
Natural Resources and Environment, there is a multitude of
issues that are covered there that particularly affect our
rural states and they are important. Things that--I will be
honest with you, and I do not know how my colleague feels, but
I get hit with them every time I go home, which are questions
in regard to everything from wetlands and wetlands reserve
programs, as well as the rural schools initiatives and other
things like that. So those are important issues to our
constituents and you will definitely hear from us a great deal
in terms of many questions that we will have.
I know my time is running out. I just wanted to touch
briefly with Mr. Spearman. As our nation is recovering from
financial crisis, there has been much discussion about
regulatory reform. We heard it from the previous panel and
oversight of the financial institutions.
I certainly strongly believe that the Farm Credit
Administration Board needs qualified individuals who can be
independent and objective regulators and we look forward to
that. If you could share with us your qualifications and
capabilities that you would bring to the job to be an
independent, objective and conscious regulator of the Farm
Credit System and Farmer Mac.
Mr. Spearman. Thank you, Madam Chairman. My experience
after graduating from Indiana University was to work for a
public accounting firm and as an auditor in a public accounting
firm we learned extensively how to actually go into a company,
a company that was actually paying you for that job, and to act
as an independent auditor.
Following that experience, I moved on to an internal audit
position ultimately with Florida's Natural Growers, where I
actually worked for Florida's Natural Growers, but my job was
to actually put myself outside of the management of the company
and to observe the operations, both financially and
operationally, as an independent objective auditor.
And moving on to the AgFirst Farm Credit Bank after my
retirement from Florida's Natural Growers, I was actually
brought on that board as an independent outside director. I do
not have farming experience, if you will, other than the
experience that I have gotten visiting farms nationally from
farmers who have invited my wife and I to experience what
actual farm life is like.
So as a result of that, I have--I believe that I can kind
of put myself outside and observe the system and act as an
effective regulator.
Chairman Lincoln. I just think it is important to give you
the opportunity because as an appointed director--but you did
qualify as an independent appointed director on the board?
Mr. Spearman. That is correct.
Chairman Lincoln [continuing]. Of the AgFirst Farm Credit
Bank--to give you an opportunity to really visit about your
ability to be impartial in that.
I know our auditors here, whether it is CBO or the JCT and
others, as auditors they are non-partisan and certainly not
partial. They just count the beans and tell us how the cow ate
the cabbage is basically what they do for us. But it is
important as we create legislation to have that and certainly I
think it is important to have that independence.
Senator Chambliss.
Senator Chambliss. Thank you, Madam Chairman. Mr. Avalos,
as under secretary for Marketing and Regulatory Programs, you
are going to be responsible for regulatory decisions, obviously
in a very broad arena, including biotech approvals and import
standards for agriculture products, such as chickens and other
meat products. While sanitary and fido sanitary standards are
vital to protect our country from foreign pests and diseases,
many of our trading partners use these standards as barriers
from time to time to stop our exports.
The biotech issue, GMO issue with our European friends is
always a continuing issue and I have had significant debates
with the Russians over their, I think, faults presentation
relative to fido sanitary issues on import of chicken products,
for example. We must ensure that our regulatory system produces
decisions that are timely and science based and I simply would
like a commitment from you to adhere to science-based decisions
and not insert political, social or economic considerations
into the regulatory process.
Mr. Avalos. Madam Chair, Senator, that is a good question.
I have spent considerable time in my career working in
international trade and I know exactly what you are talking
about. I remember back in my early career in New Mexico
exporting sheep into Mexico I ran into the same situation, so I
can understand where you are coming from.
If confirmed as the under secretary, I will work with
Secretary Vilsack and this Committee to look at how we can
address these issues with our foreign markets.
Senator Chambliss. Will you commit to using science-based
technology to implement regulations?
Mr. Avalos. Senator, absolutely.
Senator Chambliss. Since Senator Thune is not here to ask
it, I will ask you about that non-controversial issue of animal
I.D. that I think was first initiated before I was elected to
the House 15 years ago, 16 years ago.
What are your thoughts relative to the implementation of
the animal I.d. program, since it looks like we have finally
come to a conclusion of the legislative process?
Mr. Avalos. Senator Chambliss, I had a hint that question
was coming and I appreciate you asking the question because it
is of tremendous interest to me and of tremendous interest to
the livestock industry in this country.
Animal I.d. is driven really by the need to trace animal
disease. I want to applaud Secretary Vilsack for conducting
listening sessions all over the country. I think this was
critical, extremely important, to allow stakeholders to come in
and provide input, provide their concerns, provide solutions.
Coming from New Mexico, we are a brand state and we have
probably one of the toughest brand laws in the country. In New
Mexico, we have the ability to quickly and efficiently trace a
disease outbreak, so in establishing the disease traceability
program, if you will, I feel that brand states--and of course,
comment and input from stakeholders should be considered as
important.
If confirmed, I would look forward to reviewing the
comments from the listening sessions and look forward to
working with Secretary Vilsack and the stakeholders to move
forward with this issue.
Senator Chambliss. It is a significant concern to all of
our livestock producers and the implementation process is not
going to be easy, but I am sure you are up to that challenge.
As I have said on numerous occasions before, I am quick to
criticize USDA when I think they have not acted properly. But
often times, we do not compliment them when they do and both
Secretary Venneman and Secretary Johanns had a BSE issue to
deal with during their tenure as secretary of Agriculture and
the department did not get the credit that it really deserves
for the way they handled that. It was done quickly,
professionally and did not interrupt our markets.
We are still paying a price on some export markets, but it
was not due to the fault or the way that USDA handled that. So
this ought to give us an additional tool to work with to try to
make the current system, which works well, even better. So we
look forward to working with you with respect to that.
Mr. Sherman, I have received about 10 letters and e-mails
from Georgians about your appointment and they raise concerns
about your approach to managing Federal, state and private
lands. I am not going to read those this morning. I would
simply like a commitment from you to let me get those e-mails
and letters to you and have you address those collectively so
that I can respond to those constituents of mine who have
raised a concern.
As under secretary for Natural Resources and Environment,
you are going to have one of the most--you are going to find
that most of your time be spent on dealing with U.S. forest
issues and I think you have already addressed that. However,
there is another very important part of your job and that is to
oversee USDA's work with producers conserving private lands.
American taxpayers invest substantial resources in helping
producers help the land each year. By and large, USDA does a
good job to provide the NRCS--excuse me, to provide the
technical and financial support to do that. But the NRCS is
under strain and it is under resourced. Farm Service Agency,
which is not under your jurisdiction, has exactly the same
problem.
We need to find a way to address the infrastructure needs
of the agencies that interact with producers on a daily basis.
I would like to know what your thoughts are on recruiting,
retaining and supporting NRCS' field staff and meeting the
agency's technology needs.
Mr. Sherman. Thank you, Senator. Let me just say at the
outset, I am very, very excited about the mission of NRCS and I
am very impressed by the scope of its work. It is truly
remarkable all of the areas, the conservation areas, that this
agency is now working in. I have been advised that the agency
has some 2,500 offices throughout the United States that are on
the ground providing services to ranchers, farms and private
landowners.
So I am excited by their mission. I think we need to
provide them with the resources they need to get the job done
properly. I met with Chief White the other day for the first
time and we had an excellent conversation. So we are going to
work very, very hard to continue this effort.
There is some wonderful new opportunities out there for
NRCS working with ranches and farms. So I simply give you my
commitment that I will work very hard at this. I hope we can
have an active dialog with each other about this issue and with
this Committee and I am anxious to get on with the job if
confirmed.
Senator Chambliss. One other issue that you are going to be
faced with right out of the box is an issue that while I
represent Georgia is of great concern to me, and that is the
issue regarding the plight of the farmers out in San Joaquin
Valley in California. It is an issue that certainly involves
ESA, which means Secretary Salazar and the Department of
Interior may have some primary jurisdiction over part of it.
But it does involve farmers in that part of the country.
They have a real significant issue that they have to deal
with and I would simply ask that when this does hit your desk,
and it will be there the day you are sworn in, that you give
immediate attention to that and work very closely with the
Department of Interior to let us see if we cannot provide some
assistance to those farmers out there who truly are suffering.
When you look at the percentage of produce that is delivered to
our farmers markets and grocery stores around the country that
come from the San Joaquin Valley, it is significant, which
means that U.S. agriculture is suffering as a result of that
issue.
Mr. Sherman. I know Senator Salazar, Secretary Salazar very
well and I will look forward to talking to him about that
issue.
Senator Chambliss. Mr. Spearman, your nomination to this
position at Farm Credit is coming at a critical time in the
financial community that both Farm Credit, as well as other
financial institutions around the country, deal with.
Agriculture, the challenge by the turmoil in the economy, has
weathered the storm fairly well.
With your experience with an agriculture cooperative, you
have seen ups and downs in agriculture firsthand. How would you
compare last year's troubles to past experience? What
challenges and opportunities do you see ahead for agriculture
and what role do you see the Farm Credit System play in
providing financing to producers as they face those current
challenges and opportunities?
Mr. Spearman. Thank you for that question, Senator
Chambliss. Of course I was not around and working with
cooperatives during the eighties, but I have heard a lot of
conversation there about the troubles with land prices that the
farmers had and the drying up of credit for a lot of those
folks who ended up losing their farms and losing their
properties.
I think the controls that were put in at that time--the
Federal Government did step in and briefly help the Farm Credit
System, by which the Farm Credit System has paid all of that
money back. I do think that the GSE designation for the Farm
Credit System has worked adequately. I think that there is
stresses in the industry currently, particularly in the dairy
and in the poultry and in some of the livestock industries.
I think the system has procedures and practices in place
that is effectively dealing with the problem. Agriculture tends
to lag the commercial industry. I believe that there is
adequate capital out there for sound loans to be made and I
just think that the industry and the system is postured to
continue to have credit for the ranchers and farmers into the
future.
Senator Chambliss. Thank you very much, Madam Chairman.
Chairman Lincoln. Thank you, Senator Chambliss. Just to
touch real quickly and there may be others in the Committee
that would like to submit questions for the record, so just to
give you all a heads up on that and I may actually join them
with a couple.
But Mr. Avalos, Senator Chambliss brought up the
biotechnology and the importance of implementing a timely and
science-based approval process and working through some of
those things. I just would stress the timeliness on that. My
understanding, that currently the average length of time for
agency decisions, making petitions for regulatory approval of
agricultural biotech products, has steadily increased and it is
alarming to me, I do not know if you mentioned those numbers,
but from approximately 150 days in 1996 to almost 700 days at
present.
Our hope is, I do not know if you are aware of that big of
an increase in terms of delay, but hopefully there will be
plans to reduce the current lengthy petition process as it
exists. We are going to need to be more competitive than ever
in this growing--as we rebuild our economy and the global
economy and I think that efficiency is going to be a critical
part of how we do that.
So would just like to bring that to your attention and
hopefully you can play a role in improving upon that.
Mr. Avalos. Thank you, Madam Chair. I acknowledge your
concerns and if confirmed, I definitely will follow up on this.
Chairman Lincoln. Well 700 days is an awful long time to go
through a process. I do have a few other questions, actually
one more just to bring to your attention, Mr. Avalos. There has
been a recent, from the USDA, the Animal Plant and Health
Inspection Service, APHIS, they are delaying right now for 30
days the implementation of a recently increased--announcement
of an increase in fees charged for certain agricultural
quarantine and inspection services.
I would like to visit with you more on that hopefully in
the future. I think the 30 days may be adequate, but I am not
sure that it is going to be adequate in order to make sure that
all of those that are participating, whether it is passengers
or airlines or others, are going to be able to put that into
place as quickly as that may be. So as much as we do not want
to delay, we also want to make sure there is adequate time to
implement, and so we may be following up with you on that at a
later date.
The Committee has also received various letters of support
for one or more of our nominees here today and Senator
Chambliss, if there is no objection, I would like to make those
letters a part of our record. So without objection, that would
be so ordered.
[The information referred to can be found on page 216-224
in the appendix.]
Chairman Lincoln. If there is no other matters that we need
to discuss, I have one last housekeeping item. Senators do have
until close of business tomorrow to submit any further
questions and the record will remain open for five business
days in order to give you, the nominees, the sufficient time
you need to respond and we hope that you will be respective of
that as we try to move forward on your nominations. We do need
the response to those questions in a timely way.
I want to thank all of you all for appearing before us
today and your willingness to serve our government in these
capacities. I would also like to take this opportunity to say
that we are only as strong as the team that we play on and the
Agriculture Committee staff is a phenomenal team. Both the
Majority staff and the Minority staff do a tremendous job and I
want to personally thank them for helping to make my first
hearing a success, in my estimates, and I hope in others'. But
they work tirelessly and do a tremendous job on behalf of the
Committee.
As I said, it may not be the most glamorous of committees,
but it is one that has an unbelievable diversity in terms of
the breadth of issues that it covers and the expertise within
the staff on the Majority and Minority side are a tremendous
asset to the country and I am grateful to all of them for the
hard work that they do.
I am still holding out on you, Vernie, but appreciate all
of you all for a very historic day for me and one that is very
meaningful and I thank you all for participating in it. We
appreciate you in offering yourself for service. And a special
thanks to my colleague and friend, Senator Chambliss.
With that, the Committee is adjourned.
[Whereupon, at 12:06 p.m., the Committee was adjourned.]