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Paulson Urges New Structure For Fannie And Freddie
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Paulson expressed skepticism about more extreme responses, such as nationalizing Fannie and Freddie completely or getting rid of any role for the government. He said nationalization "eliminates the necessary private-sector evaluations of credit risk and the private-market stimulus to innovation." And he said he doesn't think full privatization "will prove to be a robust or even viable model of any substantial scale, without some sort of government support or protection."
He said the new setup would fix many of the problems associated with Fannie and Freddie in their current form. In particular, he said, the companies were able to grow so big over time because investors believed they were backed by the government -- even when officially they did not have such backing.
When the housing downturn crippled the companies, they posed a massive risk to the world financial system.
"Government support needs to be either explicit or nonexistent, and structured to resolve the conflict between public and private purposes. Any middle ground is a recipe for another crisis," Paulson said.
He concluded his appearance by answering audience questions. One person asked what Paulson planned to do with his money when he gets out of office.
"I've got to find out where my money has been invested," Paulson responded, noting it had been placed in a blind trust. He left Goldman Sachs to become Treasury secretary with about $500 million to his name.
"You know the old joke about how you make a small fortune? And that is, give a large fortune to a person in a blind trust," he said.
Paulson, an environmental enthusiast with long ties to the Nature Conservancy, said he hasn't given much thought to what he'll do after he doesn't have to worry about Fannie and Freddie every day.
"I'm not contemplating a line of work in government, and I'm not contemplating a line of work that's commercial," he said. "I'm going to look for other areas of engagement."
