Turns out all is not clean in Caroline Kennedy’s world, according to The New York Times. Her candidacy for the Senate was derailed by alleged problems involving taxes and a household employee, says a source close to Gov. David Paterson. The news is at odds with her previously reported reasons for dropping out of the race. No additional details about the tax problem are available at this time. Sources say Gov. Paterson is leaning towards Representative Kirsten E. Gillibrand for the Senate seat.

After Caroline Kennedy’s bumpy bid for Hillary Clinton’s New York Senate seat ended this morning amid alleged problems involving taxes and her housekeeper, sources said Gov. David Paterson would appoint Upstate Democrat Kirsten E. Gillibrand instead. A centrist with an endorsement from the National Rifle Association, Gillibrand was elected to the U.S. House of Representatives in 2006 and is the first Democrat to represent her district since 1978. Before today, the two front-runners for the seat had been Kennedy and state Attorney General Andrew Cuomo. “I’m honored just to be considered,” said Gillibrand. Paterson says he’ll formally announce his pick at noon on Friday.

An early sign from President Obama that he'll make good on his promise to end the age of Bush: ABC News is reporting that Obama has issued three new executive orders today, including one directing the CIA to close its remaining black site prisons and Guantánamo Bay within a year. The orders will require an immediate review of all 245 detainees still held at Guantánamo to determine whether they should be released, transferred, or prosecuted. The orders will also prohibit the use of coercive interrogation methods, requiring the CIA to abide by the same rules as the military. The Times adds that the orders "could also allow Mr. Obama to reinstate the CIA's detention and interrogation operations in the future, by presidential order, as some have argued would be appropriate if Osama bin Laden or another top-level leader of Al Qaeda were captured."

Does he get to take the office goodies with him? CNBC is reporting that former Merrill Lynch CEO John Thain has resigned this morning, less than a month after his brokerage firm was taken over by Bank of America. Thain became Bank of America’s head of global banking, securities, and wealth management after the merger on January 1. His relationship was strained with Bank of America head Ken Lewis after Merrill’s unexpectedly large forth-quarter losses, and he was facing pressure due to Merrill’s decision to move up its year-end bonuses. Charlie Gasparino broke word today on Thain’s lavish office, which included an $87,000 rug.

Caroline Kennedy cited her Uncle Ted’s poor health as the reason for her withdrawal from New York’s senate race, but, according to Time, Caroline can take her sympathy elsewhere. Time reports that “his circle—including his immediate family—is furious that his brain cancer is being cited by some in her camp as the reason for her decision.” “It makes him look like he is at death’s door,” complains one former aide, while another says “Using him as an excuse, as though things were on the downward spiral, is not going to be O.K. with him … This will get in the way of health reform [by suggesting that its key proponent is incapacitated].”

It looks like Timothy Geithner’s back taxes haven’t knocked his confirmation off track: The Senate Finance Committee approved Obama’s choice for Treasury Secretary today 18 to 5, sending him now to the Senate for a full vote. All five dissenters were Republicans, including the GOP’s ranking member on the panel, Chuck Grassley. Obama is hoping for a quick Senate approval for Geithner, so their economic rescue work can begin.

Brad Pitt and Angelina Jolie will be the golden couple at the Academy Awards again this year. Both are nominated for their starring roles in The Curious Case of Benjamin Button and Changeling, respectively. Button is up for a total of 13 nominations—the second highest of all time. Pitt is competing with Milk’s Sean Penn, The Visitor’s Richard Jenkins, and Mickey Rourke of The Wrestler for Best Actor. For Best Actress, Jolie is up against Anne Hathaway for Rachel Getting Married, Melissa Leo for Frozen River, Meryl Streep for Doubt and Kate Winslet for The Reader. Best Picture nominees are Button, Frost/Nixon, Milk, The Reader, and Slumdog Millionaire. Marisa Tomei, Amy Adams and Penelope Cruz are up for Supporting Actress; Heath Ledger, Josh Brolin, Philip Seymour Hoffman, and Robert Downey Jr. are among nominees for Supporting Actor. So who got snubbed? Veteran actor Clint Eastwood and the newcomers from Slumdog.

The State Department had a warm welcome for its new chief, Hillary Clinton. Upon her arrival at State today, hundreds of employees burst into applause and cheers. Clinton said “This is not going to be easy. … But if it were hard, somebody else could do it.” Obama will be joining Clinton at the department later today for a joint address to employees.

As if losing his son wasn't bad enough, John Travolta was the subject of an alleged $20 million extortion attempt in the Bahamas. The mysterious plot involves the circumstances surrounding Jett's death, but facts are still shaky. Travolta's reps contacted Bahamanian police, who are investigating the complaint.

A new sign that our current financial woes are unlike any that have come before them: Microsoft announced today that it will be cutting up to 5,000 workers over the next 18 months--the first time in the software giant's 34-year history that is has undertaken company-wide cuts. CEO Steve Ballmer said in a statement that Microsoft is "not immune to the effects of the economy." Microsoft's losses are due both to a slump in PC sales and the popularity of "nextbooks," cheap laptops that come bundled with Windows XP instead of Vista, or no Microsoft software at all.

Chinese judges dealt death sentences to a pair of convicted dairy criminals involved in the distribution of fatally tainted milk products, while other collaborators are awaiting trial, the Wall Street Journal reports. The milk contained melamine—a chemical that can cause severe organ damage—that killed six children and made over 300,000 sick. Critics of the state's handling of the case, however, blame the inadequate reach of a prosecution strategy that singles out a few scapegoats instead of confronting the issues widely believed to be at the root of the crisis: lack of government oversight. Local officials were reportedly alerted of the contamination in August, but chose to quietly remove tainted products from store shelves rather than publicly disclose the problem. The state is currently brokering an out-of-court settlement between victimized families and the dairy companies.

Let this be a cautionary tale to President Obama as he chooses a family dog: Former French President Jacques Chirac was rushed to the hospital yesterday after being mauled by his "clinically depressed" white Maltese. The dog, named Sumo, is prone to "vicious, unprovoked attacks" according to Chirac's wife, and is on anti-depressants. Mr. Chirac was treated as an outpatient and sent home.

Sony Corp. is projecting record operating losses of $2.9 billion for the year. The Tokyo-based company attributed the losses to weak consumer demand and the increased value of the yen. This comes on the heels of the company's announcement that it would cut 16,000 jobs by 2010 and close its factory in Central Japan.

After months of speculation, it turns out New York's next senator will not be Caroline Kennedy. She withdrew her name from consideration last night, citing "personal reasons," although the New York Post is reporting that Governor David Paterson told Kennedy on Tuesday night that she was unlikely to be picked. So who can we expect to be New York's next senator? Andrew Cuomo, the state attorney general, is the odds-on favorite right now. In prior weeks, he led Kennedy in several polls. Also, according to the Post's sources, Paterson recently requested information on three possible candidates: upstate Rep. Kirsten Gillibrand, Manhattan Rep. Carolyn Maloney, and Buffalo Mayor Byron Brown.

After stunning audiences and sweeping the Golden Globes, Slumdog Millionaire and its home country celebrated today with 10 Academy Award nominations, including showings for best director, picture, and two of its songs. Residents of Mumbai, however, were protesting this morning, saying the title of the film was insulting. “I am poor, but don't call me slumdog,” said 18-year-old Rekha Dhamji, adding, “I don't want to be referred to as a dog.” Nicholas Almeida, a social activist, is filing a lawsuit Friday to get the film’s name changed. Meanwhile, star Anil Kapoor who grew up in a Mumbai slum, responded to controversy: “The film is going to be a terrific inspiration to kids around India. It's a feel-good film, a film of hope.”

Welcome to governing, Team Obama! After running the most tech-savvy campaign in history that made use of everything from social networking sites to text messages, staffers are discovering that they have to wade through a swamp of bureaucracy just to use sites like Facebook and that White House computers are outdated. Perhaps the hardest pill to swallow is that instant messenger programs are verboten under the new rules, forcing staffers to (gasp) call each other up to communicate. "It is kind of like going from an Xbox to an Atari," Obama spokesman Bill Burton said of the White House's tech capabilities.

Just when you thought Obama memorabilia couldn't be any more pervasive, Ty Inc. has announced it will create Beanie Babies—remember them?—in the image of Malia and Sasha. The dolls, "Marvelous Malia," and "Sweet Sasha," will be sold for $9.99 a piece. The Obamas did not give permission for the dolls, and Ty is now claiming the plush toys are not based on the first kids.

Secretary of State Hillary Clinton breezed through the Senate confirmation process, winning over her colleagues 94 to two. Who were the dissenters? The first is America's favorite john senator, David Vitter from Louisiana. He was the sole person to vote against Clinton when the Senate Foreign Relations Committee last week, citing concerns over Bill's foreign ties at the time. The other is South Carolina's Jim DeMint, who named Clinton's support for providing foreign aid to groups that offer abortions as the basis for his opposition. "I do not plan to slow up this nomination, but I do find it difficult to support a nominee who I know will pursue policies so contrary to American sovereignty and the dignity of the human person," he said.

$700 billion later, banks still aren't lending and their share prices have dropped to dangerous levels lately. How much more will it take to turn the corner? The Obama team is working to calculate just that, preparing a comprehensive strategy to get banks on track that they plan on releasing in several weeks. Policy choices include injecting more cash into financial institutions, creating a "bad bank" to take on their toxic assets, and even nationalizing or breaking up some banks. "We're at the beginning of this process of repairing the system, not close to the end of that process," Obama's Treasury Secretary, Timothy Geithner told Congress recently. "And it is going to require much more substantial action on a very dramatic scale."

They always say what a shock it is to be nominated, but this year, some Oscar nominees may actually have been surprised when the announcements came this morning. “The reality is I got up at 5:55 here in Utah and looked at the clock and figured the nominations were announced and it didn’t happen,” said Josh Brolin, who was nominated for his supporting role in Milk. “I said to myself, ‘That’s OK I can deal with it.’ Then I realized there’s a one-hour time difference.” Viola Davis, who was nominated for best supporting actress for Doubt, had a different strategy: get drunk. “I didn’t sleep all night,” she said. “I screamed in my husband’s ear and drank some champagne.”

To those who found President Obama's speech underwhelming, Henry Louis Gates Jr. has some advice in The Root: Read it. "We tend to forget that Lincoln's most famous speeches-Gettysburg and the second inaugural-read much better than they sounded," he writes. He admits, upon hearing Obama's speech, that he found it "less moving as a rhetorical statement than I had expected." Upon reading the speech, Gates Jr. found "plenty of grand significance. And as I reviewed the speech, Obama's rhetorical strategy clearly revealed itself, a strategy brilliantly calibrated between progressive chords and conservative ones, revealing him to be the president of all the people, words designed to show that, as he put it, 'What the cynics fail to understand is that the ground has shifted beneath them-that the stale political arguments that have consumed us for so long no longer apply.'"

In his first public statement in over a month, frail 82-year old Fidel Castro praised President Obama, calling him "a man who is absolutely sincere," but added that "despite noble intentions, there are still many questions to answer." Fidel's brother. Raul Castro, is the currently in charge in Cuba after health problems sidelined Fidel. Despite warm words, Obama hasn't yet indicated that he will address the biggest issue on the table between the two countries—whether to end the American embargo on Cuba. He has suggested, however, that he would loosen restrictions on travel to Cuba for Cuban-Americans and perhaps hold talks with Raul Castro.

Having seen the party go from a beleaguered minority to an ascendant majority under his leadership, Howard Dean left his job as chair of the DNC yesterday as his successor, Virginia Governor Tim Kaine, took over. Dean was best known for his then-controversial "50 state strategy," in which he invested in many red states in which the Democrats had previously abandoned hope of winning legislative seats or presidential votes. At the time, he took heat from some Democratic strategists and politicians for blowing through money quickly and many questioned whether his efforts were a futile waste of time. After the Democratic party regained the majority in the House with surprise wins in a variety of right-leaning districts in 2006 and President Obama shocked the world by winning red states like Virginia and Indiana, however, Dean's plan to build a Democratic infrastructure in the red states was vindicated.

If Governor Rod Blagojevich is kicked out of office, it at least looks like he'll have someone to keep him company while he searches for a new job: His wife, Patricia, has been fired from her job as a fundraiser for a Chicago homeless agency. The Chicago Christian Industrial League confirmed to the Chicago Tribune yesterday that Blagojevich has been fired, though would not say "why the board fired Blagojevich because it is a personnel issue." Blagojevich made almost $100,000 a year from the financially strapped organization.

Former President Bush's daughters Jenna and Barbara left a helpful note for Malia and Sasha Obama, imitating a tradition in which the outgoing president leaves a similar missive for the incoming one. According to the Bushes, Sasha and Malia should take care not to let outside perception of their dad influence their own perspectives. "He is our father, not the sketch in a paper or part of a skit on TV," they said in the note. "Many people will think they know him, but they have no idea how he felt the day you were born, the pride he felt on your first day of school, or how much you both love being his daughters. So here is our most important piece of advice: Remember who your dad really is." The twins added that Sasha and Malia should take advantage of their surroundings and enjoy the many unique privileges that come with the White House. "Slide down the banister of the solarium, go to T-ball games, have swimming parties, and play Sardines on the White House lawn," they recommended. "Have fun and enjoy your childhood in such a magical place to live and play."

It looks like the ladies of Sex and the City will be dusting off their Louboutins: Us Weekly is reporting that Sarah Jessica Parker, Cynthia Nixon, Kristin Davis, and Kim Cattrall have signed on for another film. “Not all the contracts are signed, but everyone is on board,” says an Us source. “It just happened.” The first Sex and the City movie premiered in May and grossed more than $150 million. Naturally, Carrie, Miranda, Charlotte, and Samantha are getting hefty pay raises this time around.

Caroline Kennedy’s senate campaign went so disastrously that she could not, you know, even end it without massive confusion. After word broke that Kennedy was withdrawing from the competition for Hillary Clinton’s senate seat, a family source told NBC News that she had not, in fact, withdrawn and that reports of her withdrawal were based on a “miscommunication.” NBC later revised its report to say that she was really out, but then at 10:38 p.m., the Associated Press issued an alert saying that Kennedy “remains in contest.” As of this morning, Kennedy is really out, citing “personal reasons” for her withdrawal, though the New York Post is reporting that she withdrew only after Governor David Paterson informed her she would not be his choice.