Opening Statement of Chairman Frank D. Lucas
Committee on Agriculture
Public Hearing: Commodity Futures Trading Commission 2012 Agenda
February 29, 2012

As prepared for delivery

Good morning, and thank you all for being here.  Today’s hearing will focus on the Commodity Futures Trading Commission (CFTC) agenda for the upcoming year.  I’d like to thank Chairman Gensler for joining us to share his perspective.

This is a timely hearing, as the CFTC is facing a number of issues of concern to our constituents.

First and foremost on the CFTC’s agenda for the coming year must be its investigation into the collapse of MF Global and its missing customer funds.  Thousands of customers have yet to receive nearly 30 percent of the funds that MF Global should have held in segregated accounts.

While I commend the Trustee for working quickly to trace the thousands of complex transactions that occurred during MF Global’s final days, the fact remains that many customers have not yet been made whole.

Farmers and ranchers across the country continue to face hardships because of their missing funds, and have lost confidence in the futures system.

This raises several key questions about customer protections in place, and the CFTC’s role in futures markets.

Although the CFTC has gained new authorities over the swaps market under the Dodd-Frank Act, the MF Global collapse demonstrates the importance of CFTC’s oversight responsibilities in futures markets.

In addition to our concerns about MF Global customer funds, we also must address the Dodd-Frank rulemaking process.  As the CFTC nears the half-way mark in completing the dozens of regulations required by Dodd-Frank, I remain concerned about the breadth of the proposals.

Instead of focusing resources on the entities and activities that pose the most significant risks to our financial system, the CFTC is casting a wide net that could needlessly catch end-users.

For example, for months we have been assured by Chairman Gensler that the swap dealer definition would not result in unnecessary registration of end-users, which Congress never intended to fall within the swap dealer category.

However, as the Commission neared consideration of the rule last week, end-users were frantically seeking clarification that their hedging activities would not be classified as swap dealing.

This doesn’t make sense, because Congress never intended for hedging to be considered swap dealing.

Additionally, the CFTC has yet to propose a rule that will clarify the scope of its new regulations for activities that occur outside our borders—what we refer to as extra-territoriality.
There is a long-standing precedent by both the CFTC and the prudential regulators to defer to foreign regulatory authorities in matters concerning foreign entities and transactions.

Expanding the reach of Dodd-Frank into activities conducted outside our borders not only ignores principles of international law, but it spreads our agencies and resources too thin.  It also threatens the international coordination required for global financial reform as envisioned by the G20.

Additionally, the lack of clarification on the territorial scope of regulations has made it incredibly difficult for market participants to prepare for compliance.

The confusion over the swap dealer definition and the foreign scope of regulations are just two examples of the many issues on which the CFTC has failed to deliver concrete answers or policy solutions.  Our constituents need more than empty reassurances.

Most of these concerns are rooted in an issue that we have discussed for more than a year now—the need for strong and robust economic analysis.

The Economist recently highlighted the Obama administration’s tendency to overstate the benefits of regulation while underestimating the costs.  That has certainly been apparent in the Dodd-Frank rulemaking.

At a public meeting recently, CFTC staffers admitted they simply had not calculated the costs and benefits of a rule governing internal business conduct standards.  They could not provide substantive analysis for the conclusions they drew about how that rule would impact our economy.  That’s unacceptable.

Even if the CFTC was attempting to conduct economic analyses of Dodd-Frank regulations, it would be difficult given the lack of clarity about which organizations will be affected by each rule.

Making policy without regard for the economic consequences is a luxury we cannot afford even in the strongest economy.  We certainly cannot afford it now.

I look forward to hearing Chairman Gensler’s agenda for 2012, but more than that, I look forward to a time when we can guarantee our constituents that they will not be overburdened by regulations that were not intended for them.

In Case You Missed It:
Protecting Endangered Farmers

WASHINGTON – The Wall Street Journal published an editorial today criticizing a policy which prevents farmers in California’s San Joaquin Valley from receiving fresh water to irrigate crops and feed consumers.

As the article points out, “More than 10,000 farm jobs have been lost as a result, and regional unemployment stands at about 15%. Environmentalists blame the water shortages on drought, but even in wet years farmers aren’t getting the water they’re due.” 

The policy was put in place to protect a fish known as the smelt.  But even though there is strong evidence that there are other factors causing the smelt’s population decline, “Environmentalists still blame the pumps since they want to shrink the state’s corporate agribusinesses, which produce more than half of America’s fruits and vegetables.  Maybe farmers should petition the Interior Department for protection against predatory environmentalists.”

The House of Representatives is taking action today by considering H.R. 1837, the San Joaquin Valley Water Reliability Act, which would reduce the amount of fresh water that can be diverted to the San Francisco Bay, thereby increasing the amount available for irrigation.

The House Agriculture Committee continues to work to reduce regulations that are overly burdensome or not based on sound science, through hearings and legislation.

The full text of the article follows and can be accessed online here.

Protecting Endangered Farmers: A tale of modern California
February 29, 2012

Rick Santorum may have had a point the other day when he said that some environmentalists care more about animals than people. Take the water restrictions the federal government has imposed on California farmers to protect the three-inch delta smelt.

Environmentalists have long complained that the San Joaquin-Sacramento River Delta’s pumps, which send water to Central Valley farmers and southern California residents, trap and kill fish. In 2006 the Natural Resources Defense Council sued the U.S. Fish and Wildlife Service for issuing a biological opinion that supported pumping more water south because the agency didn’t analyze how the pumping might affect the smelt. A federal court ordered the agency to be more mindful of the smelt.

So the agency demanded that water regulators reduce pumping. The National Marine Fisheries Services joined the fun by recommending that regulators restrict pumping to protect salmon, sturgeon and steelhead too. These opinions have superseded the water contracts of farmers and resulted in 3.4 million acre-feet of fresh water flowing into San Francisco Bay each year—enough to irrigate over a million acres of land.

More than 10,000 farm jobs have been lost as a result, and regional unemployment stands at about 15%. Environmentalists blame the water shortages on drought, but even in wet years farmers aren’t getting the water they’re due.

The kicker is that the biggest threat to the smelt might be other fish. The National Academy of Sciences noted in a 2010 report that factors other than the water pumps appear to be contributing to the smelt’s decline, namely nonnative predatory fish and pollution from wastewater treatment plants.

Environmentalists still blame the pumps since they want to shrink the state’s corporate agribusinesses, which produce more than half of America’s fruits and vegetables. Maybe farmers should petition the Interior Department for protection against predatory environmentalists.

At any rate, even the same federal court now thinks the feds have gone too far. In a lawsuit brought by the water districts against the Fish and Wildlife Service in 2010, the court scored the agency for not considering “reasonable and prudent alternatives” that minimized the impact on humans and for attempting to “mislead and to deceive the Court into accepting what is not only not the best science, it’s not science.”

The court ordered the agency to revise its biological opinion, but the Natural Resources Defense Council has appealed. Meanwhile, regulators have told farmers to expect only 30% of their contractual water allowance this year. Good grief.

GOP Congressman Devin Nunes of Fresno is trying to restore some certainty to farmers and sanity in the water wars. He’s introduced legislation that would cap the amount of water that annually flows into the Bay at 800,000 acre-feet per year, which is what Congress agreed to in 1992 before environmentalists started suing.

The House is expected to pass his bill Wednesday, but its prospects in the Senate are less sanguine. California’s Democratic Senators Dianne Feinstein and Barbara Boxer have dismissed it as “overkill” and called for “consensus-based solutions that respect the interests of all stakeholders.”

Funny, that’s what the environmentalist groups are saying too. Trouble is they seem to think that the most important stakeholders are the fish.

Ag Committee Presses CFTC Chair
on MF Global & Dodd-Frank Rulemaking Process

WASHINGTON – Today, the House Agriculture Committee held a public hearing to review the 2012 agenda of the Commodity Futures Trading Commission (CFTC) as the agency continues to investigate the collapse of MF Global and promulgate rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Members of the Committee pressed CFTC Chairman Gary Gensler on the strength of customer protections in place in light of the collapse of MF Global. Thousands of customers have yet to receive nearly 30 percent of the funds that MF Global should have held in segregated accounts.

Additionally, Members also questioned the status of the rulemaking process. Although the CFTC has finalized 28 rules, the agency has yet to propose or finalize more than 20 rules that relate to the Dodd-Frank Act. Some of these rules relate to defining “swap” or the entities such as “swap dealer” or “major swap participant.” This lack of clarity and certainty regarding key definitions has made it difficult for market participants to understand the full impact of rules that have been finalized and raises questions about the CFTC’s ability to consider the costs and benefits of each rule. It further creates regulatory uncertainty for businesses across the country.

“This is a critical time at the CFTC, involving many issues that are important to our constituents. Today, we had the opportunity to question the Chairman about MF Global, the customer funds that remain missing, and how the Commission will respond to enhance customer protections.  We also continued to push the Chairman that new rules required by Dodd-Frank should not unnecessarily burden businesses or the economy with overly broad or cumbersome requirements. Making policy without regard for the economic consequences is a luxury we cannot afford even in the strongest economy,“ said Chairman Frank Lucas.

Written testimony provided by the witness is linked below. Other information relating to this hearing, including archived video can be accessed here.

Witness List:

Panel I

The Honorable Gary Gensler, Chairman, Commodity Futures Trading Commission, Washington, D.C.