(April 5, 2013) — Former US Treasury Secretary Hank Paulson believes the American housing market is on route to another crash.
Speaking on Bloomberg TV later today, Paulson will warn that the state-backed lenders Fannie Mae and Freddie Mac must reform if the US is to learn any lessons from the financial crisis.
“Today, the government is guaranteeing 90% of the mortgages. If the government keeps doing this, and markets aren’t allowed to work, we’ll be right back where we were in 2007 and 2008,” he will say during “Conversations with Judy Woodruff”, scheduled to air at 4:30pm EST on Friday.
The damning critique comes despite Fannie Mae’s record annual earnings, revealed earlier this week – a quarterly profit of $7.6 billion.
In late February, Freddie Mac reported 2012 net income of $11 billion, compared with a loss of $5.3 billion in the prior year.
A transcript of the Paulson interview reveals he said he “had to pinch himself” after reading about Fannie’s profits.
“I could hardly believe what I was reading. When housing recovers, of course they’re going to make more money, and that’s a good thing now, because the government losses will end being – or the taxpayer losses will be less than projected.”
The former Goldman Sachs chief executive also said the government must slow the growth of entitlement programs and raise tax revenue by closing loopholes.
Despite the gloomy outlook, Paulson was more cheerful about the prospect for the American economy as a whole, predicting it could generate about 200,000 jobs a month in 2013 as business investment picks up.
Paulson’s warnings on the housing market resonated with those of Republican senator Bob Corker; on April 2 Reuters reported Corker said any government sponsored enterprise’s profits should not be used as an excuse for congressional inaction.
“I’m glad Fannie Mae is showing an increase in income, but we have to remember that this is largely because we have crowded out private capital and made Fannie or Freddie the only viable execution option for new loans,” he said.
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