Secretary of the Treasury’s latest statements and intention of backstopping both Fannie and Freddie’s securities by the U.S Government have raised serious questions of conflict of interest.

The real question is, how can these institutions be allowed to spend 10’s of millions of dollars lobbying when their debts are now covered by the taxpayers.

According to a recent article in the “Wall Street Journal”, large companies with the help of pension and tax consultants have discovered that they can fund the “HCE” (Highly Compensated Employee) plans out of the existing pension plan for the average worker

It was generally accepted that by giving top executives additional pension benefits, the company had to fund them separately. Not any more…

Federal law allows and encourages a company to offer pension plans by giving the company a tax deduction with the additional benefit of the funds growing tax free.

Under current law, a highly compensated employee (HCE) is able to participate in the plan but their not benefits could not be “proportionately large”

So, the companies and consultants got together and figured out how to game the system. They discovered that they don’t have to compare apples to apples when running the proportional benefit test, they can compare apples to oranges and pass.

The large disparity between top executive benefits that came directly out of the company and not tax deductible and the normal pension plan for the workers which is, can be re-jiggered by comparing the ratios of benefits among “groups”.

These “groups” are subject to interpretation and have not yet been challenged by the IRS or any one else, so far…

For instance, the company can compare the social security benefits a worker is anticipated to receive in relation to his or her overall “benefits” and compare that to the “HCE” executive.

The bottom line is that the companies that have discovered this little trick can now ask the taxpayers to help fund the benefit packages of the fatcats.

Let’s see if I got this right, the entity’s that want to sell securities pay S&P a fee to rate the risk of these securities. If S&P rates them as stinkers, the securities get a junk rating and make them harder to sell. What do you think S&P is going to do (keeping in mind the feeding hand)?

S&P is a part of much larger McGraw-Hill, publishers of Business Week among other things. Could we really be cynical and  say Business Week isn’t going to slam the very clients who are paying S&P?

What do you think…