1- Given the role of mega-banks and insurance companies in the current crisis, shouldn't the U.S. be more concerned about letting financial players get too big? What in the reform package will prevent continued consolidation?

2- As the Federal Reserve's balance sheet and responsibilities expand dramatically, is it time to look at restructuring the body to make it more diverse and democratic? 

My question would be, is the Obama Plan’s proposal to give the Fed the mission to supervise systemically important financial firms (‘Tier-1 Financial Holding Companies) compatible with monetary policy independence?

1) Much of the argument that inflation will remain subdued seems to be based on continued weakness in the U.S. and indeed the global economies. In effect, a sizeable output gap is expected to prevent price pressures from arising. This may work for a period, but the expression of “stagflation” was created specifically to describe a period when economic weakness and rising inflation occurred simultaneously. Given the unprecedented infusions of liquidity into the credit markets by the Fed and the ECB and others, should we be concerned that the output gap break won’t be enough to halt the rapid inflation train?

2) For a variety of reasons, the inflation expectations genie has remained in his bottle. The longer he remains there, the more flexibility the Fed will have in dealing with financial markets now, and inflationary pressures later. What kinds of events might awaken the genie before we are ready?

3) Much is made of the need for a systemic risk regulator, nationally and internationally. It sounds fine in general, but how could such a regulator be constituted so that it would have materially better information, materially better insight, materially better analysis than does the Fed, the Treasury, or the private sector today? In the immortal words of Walter Mondale, “where’s the beef”?

4) The President’s regulatory reform proposal has largely taken a pass on the idea of rationalizing the nation’s many regulatory bodies, suggesting only the elimination of the Office of Thrift Supervision. Can we have adequate financial regulatory reform if we leave the architecture untouched?

5) What three financial regulatory reform proposals would be most important for assuring investor security and protecting against system risk?

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(a) How does Mr. Bernanke assess the Fed’s policy of quantitative easing? Since the FOMC’s April announcement that the Fed would buy US$1,450 billion in Mortgage-Backed Securities and US$300 billion in US Treasuries, long term interest rates have risen rather than declined. Does this suggest that the Fed has limited power to affect long-term interest rates?

(b) How much of a constraint does he find the Obama Administration’s budget proposal on the Fed’s room for maneuver? The CBO is suggesting that the Obama budget proposals would keep the US budget deficit high at between 4-6 percent of GDP for many years to come even after the economy fully recovers. How is Mr. Bernanke going to assure markets that the Fed will not be monetizing these deficits?

(c) How does Mr. Bernanke see the health of the US financial system? Since the Treasury’s stress test of the 19 banks, unemployment has moved to a trajectory, which suggests that the worst-case scenario of the stress test is too optimistic. Is there a Plan B if we get renewed stresses in the financial system?

(d) The Fed has trebled the size of its balance sheet to around US$3 trillion to deal with the financial crisis. This is prompting concern in the markets that the Fed liquidity will lead to high inflation. When will the Fed begin to define an exit strategy?

(e) Many think that stabilization of the US economy requires the stabilization in US housing prices. What are the prospects for home prices stabilizing with housing inventories so high and foreclosures rising at a rapid pace?

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