[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

                              ----------                              

                     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
                              ----------                              

                                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

                              ----------                              


                     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.]