Sources say that Economic Recovery Advisory Board Chairman Paul Volcker’s recent proposal to limit banks’ proprietary trading will either undergo huge changes or be scrapped entirely as Democrats struggle to put together a regulatory reform bill. Politicians on both sides of the aisle believe that including the policies laid out in “the Volcker Rule” will destroy bipartisan support for financial regulatory reform, and a staffer for Banking Committee Chairman Chris Dodd said, “Chris is retiring so he wants to end his career with an important regulatory reform bill and he wants to make the bill bipartisan. He is not going to risk bipartisan support to make the White House happy.” Members of the Senate are also divided on whether or not such regulations actually reduce risk in the market, and as an alternative, Democratic Senator Mark Warner of Virginia is proposing that banks invest a total of $1 trillion in infrastructure projects.

The federal government may be investigating whether or not Blackwater bribed Iraqi officials on the one hand; on the other, the security contractor, now known as Xe, is still winning government contracts from the likes of the Pentagon and the CIA by changing the names of its subdivisions. In some cases, Xe calls these offshoots merely “affiliates,” but ABC News says that all are owned by Blackwater founder Erik Prince and that “the companies are nothing more than new names on the same old Blackwater.” In total, there are 20 different “limited liability corporations” that are owned by Prince and registered to the same address as Blackwater-Xe.

Taxes on top earners will increase by nearly $1 trillion over the next 10 years, thanks to the Bush tax cuts expiring this year, steeper taxes on capital gains, and limits on deductions. The top two income tax rates—affecting those that take in more than $200,000 or $250,000 for married couples—will jump from the current rates of 33 percent and 35 percent to 36 percent and 39.6 percent respectively. For people at those income levels, capital gains and dividends would be taxed at 20 percent, instead of the current 15 percent. And a taxpayer's ability to claim itemized deductions and personal exemptions will be limited, thanks to an expiring law. The Obama administration has proposed going a step further—the highest-income earners can currently reduce their taxes by up to 39.6 percent of those deductions, but that number could drop to 28 percent under the new proposal. Fund managers would see their income taxed at ordinary income rates, instead of capital gains rates. And the estate tax would return after a one-year repeal. Furthermore, using family trusts to limit estate-tax liabilities would be limited, which the Obama proposal says would earn an extra $23.7 billion over 10 years for federal coffers.

Toyota’s decision to stop selling eight models due to a faulty gas pedal and floor mats while some eight million cars are repaired will cost the company billions of dollars, and that’s before the lawsuits start swallowing money. At least 10 lawsuits against the car company are seeking class-action status in U.S. and Canadian courts. Though the National Highway Traffic Safety Administration says it has no proof that anyone has been hurt by a stuck pedal, five people have died due to floor mats snagging the accelerator. Experts say car owners will have trouble winning damages if they can’t show that they experienced sudden acceleration—fear that it could happen is not enough. But Toyota might be more at risk in states that say companies have a “duty to warn” customers about a defect. Some may sue over loss of resale of their cars, now that there’s a stigma attached to their models. Whatever the outcome, it’s likely Toyota will be dealing with a public relations nightmare for a long time.

President Obama sent a $3.83 trillion budget to Congress on Monday—a plan that includes a $100 billion jobs-creation measure, a fee on big banks, a tax hike on energy producers and families that earn more than $250,000, and a record $1.56 trillion deficit for 2010. The jobs measure would provide a tax break encourage businesses to hire and would boost government spending on infrastructure and energy projects. The fee on big banks would raise an estimated $90 billion.

Senator Ben Nelson is notorious for winning millions for his state while negotiating over health-care reform, but could there be more? Ads have hit Nebraska airwaves praising the Democratic senator for working to keep a Medicare buy-in and the public option out of the health-care reform bill. Nelson speaks into the camera about blocking those “who wanted a government takeover,” but if you look closely, it’s not a Nelson campaign ad. The ad was actually paid for by the Nebraska Democratic Party, which in turn got its cash from the Democratic National Committee. Nelson was one of the moderate holdouts who wouldn’t say whether he’d vote to block a Republican filibuster and push the Senate version of the bill through until Majority Leader Harry Reid promised that all new Medicaid enrollees in Nebraska would be paid for by the federal government. Nelson announced he would vote for the bill December 19, and the funds—$498,760—were donated by the DNC on December 28.

After 40 years of working tirelessly for Democrats—and sucking up so much cash for the party he was called "the Hoover"—Louis Susman finally picked a winning presidential candidate: Barack Obama. Susman bundled $247,000 for Obama's 2008 campaign and another $300,000 for his inauguration, and he was rewarded handsomely. Susman is now the American Ambassador to the U.K., widely recognized as the most plum of all diplomatic appointments, one that comes with a 35-room mansion in a country blissfully free of imminent civil war. But Susman, a Chicago investment banker, has taken some flak for being the latest beneficiary of a long tradition of rewarding the best fundraisers with diplomatic positions. Obama promised change, after all. "If the reporters seemed snappish, perhaps it was because the press secretly had hoped for more celebrity wattage. Among the names that had been loosely mentioned as possible candidates for the ambassadorship were Oprah Winfrey; Anna Wintour, the editor of Vogue; and Caroline Kennedy," Chicago Magazine says. Beginning with John Adams, Five envoys to England have gone on to become president.

Sex education classes that encourage children to remain abstinent—controversial since getting major funding from the Bush administration—can convince a significant number of them to delay sex, researchers have concluded from a landmark study. The study found that a third of 6th and 7th graders in abstinence-focused classes began having sex within two years, but nearly half of students who took sex ed that included information about contraception became sexually active within that time. The professor who led the study said the evidence showed that abstinence-only education shouldn’t be written off. The findings come as teen pregnancy rates are increasing for the first time in a decade and amid intense debate over the Obama administration’s canceling of $150 million in federal funding for abstinence programs, which showed little evidence of their effectiveness until now.

If it brakes, don't fix it: Toyota announced on Monday that it had already embarked on a plan to repair the sticky gas pedal problem that has led to the recall of 4.2 million vehicles in the U.S. and around the world. The automaker's dealers will introduce extended hours—24 hours at some locations—in the hopes that cars can be fixed as quickly as possible, and President Jim Lentz said that he was confident that the company had identified the problem and successfully created a fix. "We know what's causing the sticking accelerator pedals, and we know what we have to do to fix it," he said. Lentz told the Today show: "I drive Toyotas. My family members drive Toyotas... I would not have them in products that I knew were not safe."

Prince Harry fell head-first off a horse during a polo match and was uninjured, but nevertheless threw a bit of a temper tantrum afterward. Harry angrily threw his mallet to the ground, ripped off his helmet and punched it. But afterward, the 25-year-old royal said it wasn't the fall that angered him. "I met this nice businessman at dinner last night who offered me $50,000 for Sentebale [the charity he co-founded with his mom] if I fell off my horse today," Harry said. "His wife turned ‘round and said, 'That's a bit harsh, you should give him $100,000 if he stays on.' " Unfortunately for him, Harry shook on it. "So when I fell off, I threw down my mallet and shouted: 'What a waste of $100,000!'" The horse was not injured.

Finally, some good news for the music industry: Sunday night's Grammy Awards ceremony, which featured a string of show-stopping performances including a duet between Sir Elton John and Lady Gaga, drew in a whopping 25.8 million viewers, a 35 percent boost from last year and the best rating for the show in six years. Grammys numbers even outstripped ratings for all Sunday night football games this season along with Game 4 of the World Series, and by far outperformed other awards shows,  including the Golden Globes and the Emmys, which drew in 17 million and 13.5 million viewers, respectively.

The 10 Americans held in Haiti accused of illegally trying to take 33 children out of the country will have a court hearing Monday, U.S. authorities say, and may eventually be tried in the U.S because of Haiti's devestated judicial system. Some of the group are members of a Baptist church in Idaho, and say they were just trying to help the children get out of the country and start a new life. But Haiti’s prime minister said the Americans are kidnappers. "From what I know until now, this is a kidnapping case," Jean-Max Bellerive said. "Who is doing it, I don't know. What are the real objectives or activities, I don't know. But that is kidnapping, and it is more serious because it's involving children." The accused are being treated well and are holding on to their faith, according to U.S. Embassy officials who visited them in jail. "The intention was simply to go down and try to be an aid in ministering to children that had been orphaned in the quake," the pastor of the Americans’ church said. "It was our intention to be part of a new orphanage. The decision was made that we could house those children in the temporary sites."

One way to make sure your book becomes a bestseller: Sarah Palin used her political action committee to buy more than $60,000 worth of copies of her memoir, Going Rogue. Hotline  points out that the PAC spent more on books than it did on donations to other candidates. Sarah PAC also spent $8,000 on colorful bookmarks.

Another plate for President Obama to spin: He wants to overhaul No Child Left Behind. The president will seek to change the way schools are judged as successes or failures and will eliminate the law’s 2014 deadline for bringing every single American student to academic proficiency. Sources say he'll seek to replace the law’s binary pass-fail accountability system with one that divides schools into more nuanced categories, and that he’d replace the 2014 deadline, which Education Secretary Arne Duncan has called a “utopian goal,” with the goal of having all students leave high school “college or career ready.”

A deadly day in Baghdad: An Iraqi police official tells the Associated Press that a female suicide bomber killed at least 54 people during a Shiite pilgrimage on Monday. At least 100 people were wounded too after the bomber hid explosives under her abaya and joined pilgrims in a Shiite neighborhood. It was the first major attack in Iraq in 2010.

For those who are already sick of awards-season overload, the perfect antidote has arrived in the form of the Razzie nominations, which round up the worst movies and performances of the year and reward them with spray-painted statues. This year marks the awards’ 30th anniversary, and there’s quite a bit of overlap between this year’s Razzies and the Academy Awards–Sandra Bullock, who earned a Best Actress Oscar nod for The Blind Side is up for Worst Actress thanks to her fizzled comedy All About Steve, while this year’s Oscar co-host Steve Martin was nominated for Worst Actor for his work in The Pink Panther 2. Twilight Saga: New Moon scored a Worst Screen Couple nod for “Kristin Stewart and either Robert Pattinson or Taylor Whatz-His-Fang” and though she earned a record number of awards at this weekend’s Grammys, Beyonce wasn’t as lauded for her role in Obsessed, which earned her a nomination for Worst Actress.

He may not be as reclusive as the late J.D. Salinger, but an interview with Calvin and Hobbes creator Bill Watterson is still a hard thing to come by. Via email, The Cleveland Plain Dealer managed to talk to the cartoonist in his first major interview since 1989. Fifteen years after the beloved comic strip came to an end, Watterson still insists, “It’s always better to leave the party early. […] I think some of the reason Calvin and Hobbes still finds an audience today is because I chose not to run the wheels off it.” Watterson also joked about his avid fan base, “Ah, the life of a newspaper cartoonist—how I miss the groupies, drugs, and trashed hotel rooms!” Even as the U.S. Postal Service prepares to release a commemorative stamp for the strip, Watterson refused to take too much credit, saying, “You mix a bunch of ingredients, and once in a great while, chemistry happens. I can't explain why the strip caught on the way it did, and I don't think I could ever duplicate it. A lot of things have to go right all at once.”

In 1971, the Booker Prize changed its rules so that the prize would be given to a book published that year, rather than, as it had previously been, to a book published the year before. That means that no prize was ever awarded for a novel in 1970—an oversight that the Booker Prize is now seeking to remedy. A panel of judges will shortlist six books from 1970 in March, meaning that Iris Murdoch’s A Fairly Honourable Defeat, Muriel Spark’s The Driver’s Seat, and Joe Orton’s Head to Toe could finally win. Then, in May, a winner will be announced, based on voting on the Man Booker Prize’s Web site.

We may have lost Michael Jackson, but at the Grammy Awards Sunday night, audiences got the next-best thing: a 3-D performance of his famous "Earth Song." Smokey Robinson, Usher, Carrie Underwood, Jennifer Hudson, and Celine Dion all took the stage to pay homage to the King of Pop. When portraits of Jackson appeared on the mega screens at the close of the performance, the crowd removed their 3-D glasses and gave the group a standing ovation. After the performance, Lionel Richie welcomed Jackson's children, Paris and Prince Jackson, to accept a Lifetime Achievement Award on his behalf. Dressed in matching outfits inspired by their father, Prince thanked the fans, who were "always there for him," while Paris closed with, "We love you, Daddy." 

Add one more voice to the chorus of backlash against Barack Obama. In a blistering op-ed for The Wall Street Journal, author and professor at Johns Hopkins School of Advanced International Studies Fouad Ajami slams the president’s ambitious agenda as a mark of “hubris,” adding, “Mr. Obama flew too close to the sun.” The problem, Ajami writes, stems from the sky-high hopes Obama encouraged voters to attach to his presidency by voters in the 2008 campaign, which also allowed for a rapid decline in public opinion. Ajami also questions comparisons between Obama and John F. Kennedy, who he says “never fell for his own mystique” whereas Obama is "smitten with his own specialness," concluding that in the midst of fresh terror attempts, the faltering health-care bill, and Republican Scott Brown’s victory in Massachusetts, “the spell is broken” for Obama.

Instead of investigating the financial industry, it appears CIA agents may be aiding it: Politico reports that the CIA has been permitting its agents to sell their services to private companies on the side—and buyers include hedge funds and financial firms. In one case, active-duty officers trained hedge-fund workers in “deception detection,” the art of figuring out whether an executive is lying based on clues during conversation. CIA sources defend the policy as necessary to avoid brain drain.

Goldman Sachs could pay its chief executive Lloyd Blankfein a bonus of up to $100 million, in defiance of President Obama’s insistence that banks limit such huge payouts, according to bankers at Davos for the World Economic Forum. “This is Lloyd thumbing his nose at Obama,” a banker from a rival company told the Times of London. Obama has called the mega-bonuses paid by some banks “the height of irresponsibility” and “shameful.” Blankfein was paid a record $67.9 million in 2007; Goldman’s 2009 profit was $1.8 billion higher than in 2007, which may provide a tiny bit of political cover for a bigger bonus.

Don't flinch: A congressional source reveals The U.S. will reach a record $1.6 trillion budget deficit this year. The White House’s Office of Management and Budget predicts that the deficit for the current fiscal year, ending September 30, will exceed the record $1.4 trillion mark set last year, which is a level not seen in the U.S. since World War II. The Capitol Hill insider says the deficits are expected to drop to $700 billion by the end of fiscal year 2013 and then gradually increase to $1 trillion by the end of 2020, according to the budget proposal to be released Monday.

A conservative dream team? Sarah Palin has endorsed Rand Paul, son of Ron, in the Kentucky Senate race. In a statement, Paul’s campaign said, “Sarah Palin has clearly seen that Rand Paul supports smaller, constitutional government and is taking the fight to the career politicians and will shake up the tax-and-spend crowd in Washington D.C. "Governor Palin is providing tremendous leadership as the Tea Party movement and constitutional conservatives strive to take our country back," Rand said.

More shadiness at Blackwater, the private security contractor: The Justice Department is investigating whether officials at Blackwater tried to bribe Iraqi government officials after the firm’s agents killed 17 Iraqi civilians in 2007. The investigation was opened after The New York Times reported in November that Blackwater executives had authorized payment of $1 million to Iraq officials to buy their support for retaining Blackwater contracts, though it’s unclear if that money ever actually changed hands.

To be honest, we think the kid's being a little hard on the love guv: Mark Sanford’s 12-year-old son said his father was “worse than Eliot Spitzer” after he learned about his affair with an Argentine woman, says Jenny Sanford in her new book, Staying True. Jenny told her sons about the affair before it became a media sensation, and she says that Sanford begged her for permission to see his mistress, even after Jenny had discovered their affair. Staying True hits bookstores on Friday.

It was ladies night at the Grammys on Sunday. Beyonce set a record for awards won in a single night by a female artist, taking home six trophies including song of the year. However, top prize went to Taylor Swift, whose Fearless won album of the year. Lady Gaga opened the show with a performance with Elton John and took home two awards. Kings of Leon made sure it wasn't a ladies-only affair, however, by winning record of the year for "Use Somebody."