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4.23.2010 Did Porn Cause the Financial Crisis?

By Daniel Indiviglio

The above headline might seem like a joke. It isn't. Senior staffers at the Securities and Exchange Commission were surfing Internet pornography when they should have been policing the financial system. A deeply disturbing SEC memo to Senator Chuck Grassley (R-IA) exposing this problem was reported Thursday night by ABC News. Here are some highlights via the Associated Press:

_A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.

_An accountant was blocked more than 16,000 times in a month from visiting websites classified as "Sex" or "Pornography." Yet, he still managed to amass a collection of "very graphic" material on his hard drive by using Google images to bypass the SEC's internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense and received a 14-day suspension.

_Seventeen of the employees were "at a senior level," earning salaries of up to $222,418.

_The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.

On one hand, two cases in 2007 means that either it wasn't that widespread of a problem or it hadn't yet been detected. On the other hand, the fact that this behavior seems to have been so prevalent among senior level employees is particularly troubling. They're the ones who should have been closely watching the financial industry and leading the way to help prevent the system from collapsing.

A few things should be concluded from this revelation. First, government computers must need better firewalls to block out this content. Second, this is a pretty grim verdict on the effectiveness of regulators. When on the verge of the most major economic crisis in around 80 years, they were watching porn instead of the financial system.

This certainly isn't the kind of publicity the SEC needs as it begins to prosecute its high-profile case against Goldman Sachs. This memo damages the credibility of the regulator. Though, it does begin to explain why it took the SEC more than three years to bring the complaint against Goldman: its employees had other things on their minds.