Looking to the future of Fannie and FreddieDon’t forget to check out Hank Paulson’s editorial in today’s Washington Post, despite its engaging title: "Housing policy must be set on sustainable basis".

In it, George W. Bush’s former Treasury secretary argues that Fannie and Freddie have two mutually exclusive responsibilities: 1) maximize shareholder returns — because they are, after all, private corporations… sort of; and 2) not putting American taxpayers and the American economy at risk.

Instead, he says

Congress could eliminate that tension by restructuring Fannie and Freddie to create one or two private-sector entities that would purchase and securitize mortgages with a credit guarantee explicitly backed by the federal government and paid for by the new entity. These privately owned entities would be set up like public utilities and governed by a rate-setting commission that would establish a targeted rate of return. (Emphasis mine.)

It’s an interesting read, especially coming from a conservative who begins by saying, "The financial reform bill enacted last week is a significant step toward a much-needed modernization of our regulatory structure."

It will take time to reach consensus on the government’s proper role in subsidizing housing and how to replace the GSEs with a more stable construct that reduces risk to taxpayers and the economy.