SEC's Porn Problem

Now we know why the

Securities and Exchange Commission

missed Bernie Madoff's multibillion-dollar Ponzi scheme.

Senior employees at the SEC spent hours surfing pornographic Web sites when they should have been policing the financial system, according to a scathing report released late last week from the SEC's Inspector General David Kotz. The Inspector General conducted 33 probes of employees looking at sexually explicit images over the past five years, with the majority of incidents occurring during the depths of the financial crisis.

Among the highlights -- or should we say

lowlights

-- of Kotz's report is the story of a senior attorney at the SEC's Washington headquarters who spent up to eight hours a day viewing and downloading pornography. And what did this randy regulator do when he ran out of hard-drive space on his government-issued computer? He burned the filthy files onto CDs or DVDs and stored them in his office, of course.

By the way, he's no longer with the agency. No word as to what happened to the boxes containing his porn collection, however.

Another shocker from Kotz is the tale of the enterprising accountant who was blocked more than 16,000 times in a month from visiting Web sites classified as "sex" or "pornography." Undeterred, the bawdy bean-counter used

Google

(GOOG) - Get Report

images to get around the SEC's internal filter in order to amass his own significant stash. This particular government employee, let it be known, received a 14-day suspension for his improprieties.

All told, 17 of the employees identified in the report were "at a senior level," earning salaries of up to $222,418. So it's not like these were overeducated, underpaid bureaucrats fiddling about while the global economy burned.

Just a bunch of overstimulated, underworked ones.

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Dumb-o-meter score: 75 -- Who said government work isn't sexy?

iPhone Insanity

Mother was right. It really is all fun and games until somebody loses an iPhone.

The case of the missing

Apple

(AAPL) - Get Report

iPhone prototype reached a new level of insanity last Friday when police raided a journalist's home as part of an investigation into how the Gizmodo Web site got its hands on the allegedly top-secret gadget. California's Rapid Enforcement Allied Computer Team, otherwise known as REACT, broke into the Fremont home of Gizmodo editor Jason Chen and confiscated four computers, two servers and other electronics, according to Gizmodo.

Earlier this month, Gizmodo published photos and a video of the so-called next generation iPhone after paying $5,000 for the device, which was reportedly lost in a California bar. Gizmodo later gave the iPhone in question back to Apple, which, by the way, has a representative on the steering committee of REACT.

New York City-based Gawker Media, the owner of the Web site, is charging that police broke California's shield law protecting journalists when they stormed Chen's house. San Mateo County Chief Deputy District Attorney Stephen M. Wagstaffe said Gawker's legal claims are being considered.

Chen was not home when the police entered with a search warrant. Clearly the new iPhone needs an antitheft app.

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Dumb-o-meter score: 80 -- We knew that Apple controlled the music and entertainment industry, but who knew they had their own SWAT team?

Nelson's Nonsense

Say what you want about Nebraska Senator Ben Nelson, but he sure knows where his corn is husked.

Though he failed, Nelson tried his darndest to insert a provision in the derivatives bill that would have exempted any existing option contracts from new collateral requirements. Nelson pushed for the grandfather clause on behalf of Omaha-based

Berkshire Hathaway

, which would be be severely affected by any new financial legislation.

Berkshire currently has $63 billion in derivatives contracts with minimal collateral held against them. One analyst from

Barclays Capital

predicted that passage of the bill could force the Nebraska company to set aside up to $8 billion to cover potential losses.

Of course, a

Buffett

and his cash are not easily parted. Hence, Berkshire tried to call in a favor from home-stater Nelson, who gained national acclaim for the "Cornhusker Kickback" during the health care debate.

Berkshire employees have given Nelson $75,550 over his political career, according to the Center for Responsive Politics. Nelson, who claimed his maneuvers were to promote Main Street and not save Berkshire's bacon, owned between $500,000 and $1 million of the company's stock at the end of 2008, according to the financial disclosure forms.

We here at The Five Dumbest Lab are far from surprised that Nelson would put Nebraska -- and his political backers at Berkshire -- ahead of his country. Buffett's lobbying, however, is more troublesome to us since he repeatedly criticizes derivatives as "financial weapons of mass destruction."

By saying he does not have to pony up collateral for these trades while everybody else does, and then lobbying Washington to get what he wants, Buffett is trying to play by his own rules.

To our ears, he sounds like a big shot from another one of his biggest holdings, a company located far away from the cornfields of Nebraska on Wall Street.

Yep, you know the firm we're talking about (but just in case, here's a hint:

(GS) - Get Report

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Dumb-o-meter score: 85 -- Ben Nelson's motto: Nebraska uber alles.

Greece Grounded

As Greek leaders lobby for a European bailout, Greek bond yields are flying sky-high. The same can't be said for the country's air force, however.

Hundreds of Greek air force pilots called out sick Monday in an organized protest against higher pay cuts designed to help pull the nation out of its death -- er, we mean debt -- spiral. Hundreds of scheduled training flights were reportedly cancelled as a result of the

sick-out

, despite laws forbidding the pilots to strike.

The socialist government has already passed a series of austerity measures including public sector pay cuts, pension freezes and tax hikes. Next up, according to Greek media, is the possibility that the retirement age will be raised to 67 from an average of around 62 years.

Come to think of it, it's probably better that the peeved pilots stayed on the ground. Europe's had enough air trouble lately.

The decision by the striking pilots -- and bus, tram and metro drivers, lest they be forgotten -- to ground the Greek economy could not come at a worse time. The country's politicians are frantically trying to prove their country is worth the credit risk, despite the fact that Standard & Poor's Ratings Services cut Greek debt to junk status this week. On Wednesday, the yield on the Greek benchmark two-year note rose to a white-hot level approaching 20%.

Do we really need to retell the story of Icarus to bunch of Greek pilots?

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Dumb-o-meter score: 90 -- The Greek debt problem is no myth though fixing it is one Herculean task.

Levin Loses Luster

Frankly, Senator Carl Levin, you run a real "sh*tty" congressional hearing.

Please forgive us for using the expletive, dear readers, but we felt the need to use a word the distinguished Democrat understands to make our point.

Levin used it nearly a dozen times while chairing the

Goldman Sachs

(GS) - Get Report

investigation this Tuesday, so he most certainly has a firm grasp of its meaning. That's more than we can say about his comprehension of seemingly basic financial terms.

(Once and for all, senator, a

market maker

offers prices at which a client may buy or sell a given asset, and an

investment adviser

acts in the interests of the client as a fiduciary. Got it?)

Hopefully by his next Wall Street hearing -- and there most certainly will be one -- Levin will do some homework before subjecting us all to a marathon session of paper shuffling and page turning with no discernible point.

Did Levin assemble Goldman's brass, including CEO Lloyd Blankfein, in order to: (a) Provide the clueless senators with a brief tutorial about the mechanisms by which our stock market works? (b) Act as judge and jury in Goldman's civil fraud case without jurisdiction? (c) Score political points with the American populace by smacking around Goldman Sachs?

We are thinking (d) all of the above -- and that's disheartening to us since the hearing should have been so much more than bad political theater. Worst of all, Levin's sudden case of Tourette's syndrome reduced the entire affair to a

Comedy Central

highlight.

Not that we object to seeing a few smug Goldman traders take their licks, mind you. Heck, we take our shots at them all the time. Nevertheless, what about the old innocent until proven guilty thing?

Vampire squids have Constitutional rights too you know.

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Dumb-o-meter score: 95 -- If this is the best that the government can do, then Goldman wins in a cake walk.

Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.