Granted, too-big-to-fail is an issue that has populist resonance on both right and left. Still, given McCain's trajectory over the last few years, this isn't necessarily a fight I'd have expected him to pick. Good to see him involved. Politico's Victoria McGrane has the story:

The anger at the nation’s financial behemoths is taking shape in a variety of ways, most notably in a bill from Sens. Maria Cantwell (D-Wash.) and John McCain (R-Ariz.), who are targeting big financial institutions such as JPMorgan Chase and Citigroup.

The bipartisan duo’s bill would reinstate the Depression-era law that built a wall between commercial banking and the riskier activities of investment banking. The separation — originally set up in the Glass-Steagall Act — was repealed in 1999.

On the other hand, this does continue McCain's long-established pattern of sticking his finger in the eye of politicians who defeated him (the Obama administration opposes a bank break-up). So maybe it's not so surprising after all.

Key business sector gauge at highest level since 2006.

Brad DeLong: Obama economic team has exceeded expectations.

Lending in Europe contracts again.

Leonhardt is optimistic on the effects of healthcare rationing.

Dissecting the Fed's plan to offer CDs to banks.

Continuing a tradition of mine, here is a shamelessly subjective list of the most noteworthy research which came out in the last year:

Putting a new spin on the idea of sticky wages, Lena Edlund, Joseph Engelberg, and Christopher A. Parsons point out that the earnings of high-end prostitutes don't fall as fast as the decline in the sex-worker's physical attractiveness.

William Nordhaus makes a mathematical argument for why it's impossible to ever accurately measure happiness.

Before there was Superfreakonomics, before there was even Freakonomics, there was Steve Levitt and John Donohue's (in)famous abortion paper claiming that a major cause of declining crime rates was the legalization of abortion. Reviewing follow-up research 10 years after Levitt and Donohue's original paper, Theodore Joyce finds little support for the abortion-crime link.

Yale's (and AIG's) Gary Gorton released a much-discussed paper on the nature of banking panics.

The always-interesting David Galenson surveyed art-history textbooks concluded that Alfred Stieglitz was considered by scholars to be the greatest photographer of the 20th century.

A pair of papers (one by Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo and another by Gauti Eggertsson) provided strong evidence that fiscal policy can be particularly effective when interest rates are close to, or below, zero.

Research: Those in positions of power are more likely to cheat.

Tyler Cowen: Maybe Fed isn't targeting inflation because it would hurt bank recovery.

Charts of the day: Some financial indicators return to pre-crisis levels.

Felix Salmon: Why banks will be fine if we cap credit card rates. 

How much did the Tiger Woods scandal cost his endorsers?

I'm sure Morgan Stanley is reconsidering the way it compensates executives, as described in today's Wall Street Journal, mostly because of the general outcry over executive pay. But I'd guess the recent Goldman Sachs initiative on this front a few weeks ago also made the issue a bit more urgent.

The Journal piece notes that the Morgan proposal doesn't go as far as Goldman's, which would pay 2009 bonuses to top executives entirely in the form of stock that can't be sold for five years (as opposed to cash) and can be clawed back if the executive turns out to have placed some lousy bets. That's true enough. On the other hand, it looks like the Morgan proposal is intended to be permanent, not just apply to this year. (At least one of the proposals Morgan is floating.) And it seems to have a reasonably strict clawback provision, too. Per the Journal: "Under one idea being considered, most of the top 30 Morgan executives would submit 65% or more of their pay to deferrals or 'clawbacks'—or the possibility of returning money in the event of future losses." (Not clear what the current arrangement is, though.)

If Morgan ends up making its reform permanent, its hard to believe Goldman can go back to the status quo ante in 2010. Which, again, is why I thought Goldman might be setting itself up a bit with its initial pass at this. Then again, maybe the political pressure for executive-pay reform is so strong that Goldman was always going to have to make some long-lasting changes. And, in the grand scheme of things, Goldman's 2009 proposal isn't that onerous even if the bank adopts it permanently.

How much are Iran's economic woes a factor in the continued unrest?

How low rates are making saving an unattractive option.

Fed gets a little more specific on plans to mop up excess reserves.

Chart of the day: Paying more and getting less for healthcare in the U.S.

And TNR's Franklin Foer and Noam dissect Obama's nudgeocracy.

The Journal has a wide-ranging story today on the extent to which the government's role in the economy has grown. The gist of the piece is that the expansion has been significant, which is almost certainly true, at least in the short-term. (Much of the intervention will be unwound in the next few years, though some of it won't.)

Still, I'm not entirely sure this is the right question to ask. Given that the whole financial system came close to disintegrating last fall, and that the real economy nearly followed, anyone but a complete neanderthal would have expected a pretty significant government expansion. The question is whether government expanded more, less, or about as much as we would have expected. Coincidentally, the editors of our web site have re-posted the piece Frank Foer and I wrote on this subject back in May, which argues that the expansion of government under Obama isn't as significant as you might have predicted. Ditto for his ambitions going forward. We now have about eight months' more data to work with, but I think the argument still holds up reasonably well.

Relatedly, a subtext of the Journal piece is that the consequences of all the government expansion are more negative than positive at this point. Take, for example, this detail:

Bank of America Corp. also has repaid its aid, freeing itself from the condition lenders hate most about the bailouts: Treasury oversight of executive pay. Even so, it sought the Treasury's advice on a pay package before hiring a new chief executive.

The bank was considering paying $35 million to $40 million to hire Robert Kelly, CEO of Bank of New York Mellon Corp., much of it to buy out his unvested shares and options. The Bank of America board wanted to know how that would go over in Washington. Treasury paymaster Kenneth Feinberg told the bank that if it were still under his purview, he would reject the package. Around the same time, President Obama publicly bashed "fat cat" bankers.

With those two signals, the talks with Mr. Kelly fizzled, according to officials involved with the decision. The bank instead promoted an insider, Brian Moynihan, who had been working to repair the bank's reputation in Washington. ... Mr. Moynihan, by contrast, told Obama aides in October that Bank of America wanted to work with the White House to achieve U.S. policy goals in areas like small-business lending and foreclosure prevention.

I think we can all agree that, in an ideal world, a board should be able to hire the best possible candidate for a job, regardless of his political skills. But, of course, we're pretty far away from that ideal. When it comes to the financial sector, one of the things that makes the world fall far short of the ideal is the government backing (both explicit and implicit) that makes it much, much cheaper for big banks to borrow money.  As Dean Baker pointed out to the Journal:

There's an interesting back-and-forth between Dan Gross and Tim Geithner in Newsweek's year-end interview issue:

GROSS: There have been, and continue to be, calls for you to go. How do you deal with those?

GEITHNER: I spent most of my professional life in this building. Watching the politics of the things we did in the past financial crises in Mexico and Asia had a powerful effect on me. The surveys were 9-to-1 against almost everything that helped contain the damage. And I watched exceptionally capable people just get killed in the court of public opinion as they defended those policies on the Hill. This is a necessary part of the office, certainly in financial crises. I think this really says something important about the president, not about me. The test is whether you have people willing to do the things that are deeply unpopular, deeply hard to understand, knowing that they're necessary to do and better than the alternatives. ...

This is a theme I wrote about in my profile of Larry Summers earlier this year. I don't think you can underestimate the extent to which the financial crises in Mexico and Asia were a formative experience for the Obama economic team--especially in shaping their thinking on the intersection of politics and economic policy.

In his memoir, then-Treasury Secretary Robert Rubin, who both men worked for at the time, summed up his views on the Mexican crisis by citing "the difficulties our political processes have in dealing effectively with issues that involve technical complexities, shorter-term cost to achieve longer-term gain, incomplete information and uncertain outcomes, opportunities for political advantage, and inadequate understanding." Obviously, these same difficulties made a big impression on Geithner and Summers, too. So they were more prepared than most for the political backlash this time around, even if the intensity may have surprised even them on occasion.