Don't avert your eyes. There is nothing wrong with this picture, and the baby is likely well and completely normal.
I have been making babies this month. Well, making them in the sense that I go into a room with one person, and come out with two= magic/making babies. Even as a physician I was a little shocked at how gross the little suckers can be at first. This is just a one month rotation in OB-GYN to learn me some baby delivering and problems pregnant mothers have, so when they come to the ER I will know what the hell to do with them. It has been pretty fun, and with every delivery, just before I cut the umbilical cord I yell, "And I deem you worthy of the name... TRAVIS!", then hand the baby to mother. So far, I have delivered 8 babies, and none of them are named Travis. I might be doing it wrong, but you would think it would work once in a while. Anyway, I won't be changing specialties.
Of importance to many of my readers, I came across an interesting tidbit. The usual progression is mother goes into labor, at some point her "membranes" rupture, (this is the amniotic sac the baby is in that you can see in the picture), and eventually baby delivers. Well, there is an alternate version where the amniotic sac doesn't rupture and the baby is born still inside the sac, referred to as being 'born in the caul'. Apparently, children born this way are revered in some cultures, thought to have special/magical powers and also are thought to be unable to drown. Being a caul baby was an excellent resume for becoming a sailor, and some mothers would keep the caul and sell them to sailors as powerful enchantments. SO, I would try hard to have any babies you plan to make being born 'en caul', as this is the only current way I know to enchant humans with the power of resistance to drowning.