In what is being billed as his last speech, Treasury Secretary Henry M. Paulson Jr. delivered thoughts on the future of Fannie Mae and Freddie Mac. Paulson observed that, “The GSEs are critical to getting us through this current period, and this is our first priority. More may need to be done to clarify and simplify their structure and to increase their effectiveness in curbing further housing price correction. But we cannot look only at this short-term need; policymakers must resolve the question of long-term structure because the pre-conservatorship model has been disproven. The first step must be for policymakers to decide — in light of the recent housing bubble and the severe financial and economic penalty it has imposed on our nation — the role government should play in supporting home ownership. We cannot allow a repeat of the devastation this housing correction has wreaked on families and communities across the United States. Once that decision is made, the GSEs should be restructured to meet that public policy choice and satisfy three objectives: First, there must be no ambiguity as to government backing. It must be explicit or non-existent. Second, there must be a clear means of managing the conflict between public support and private profit. Third, there must be strong regulatory oversight of the resulting institutions.” Paulson recommended replacing Fannie Mae and Freddie Mac with private entities that would purchase and bundle mortgages that, in exchange for a fee, would carry U.S. backing in the case of default and that these new entities not hold investment portfolios.  read more…