Former Secretary of the Treasury Henry M. Paulson Jr. spoke at the University of Chicago on Tuesday. (Abel Uribe/ Chicago Tribune)

By Greg Burns | A fundamental restructuring of mortgage giants Fannie Mae and Freddie
Mac is “highly likely” as the U.S. government moves to sharply reduce
its involvement in the housing market, former Treasury Secretary Henry
M. Paulson Jr. said Tuesday at the University of Chicago.

But necessary changes can’t occur right away because the financial
system remains heavily dependent on the government-backed companies,
Paulson said at an appearance to promote his new book, “On The Brink.”

The Chicago native and former chairman of Goldman Sachs Group Inc. said that Fannie Mae and Freddie Mac remain vital to stabilizing the marketplace: “We very much need Fannie and Freddie today to get us through this crisis.”

But while it’s “not advisable” to restructure those companies today, “I don’t think anybody believes that the government essentially guaranteeing all our mortgages is right or sustainable.”

After the market settles down, he said, “They should at a minimum be scaled way back.”

Speaking at a hall packed with students, many from the university’s Booth School of Business, Paulson defended his role in widely unpopular bailouts of the banking industry. The infusion of taxpayer funding prevented a far worse crisis, he told the group, echoing the theme of his book. “The major decisions we made were the right ones,” the former Bush administration official declared.

Without bailing out Fannie and Freddie as the housing market collapsed, for example, “We would have had many more foreclosures,” Paulson maintained.

The university crowd responded politely to the ex-Treasury official, applauding warmly at his introduction.

A recent poll involving University of Chicago alumni put the primary blame for the economic crisis above all on the Bush Administration’s perceived indifference to enforcing business regulations.

Yet Paulson’s tenure as Treasury secretary should be viewed in the context of extraordinary times, said Allen Sanderson, a university economist who designed the informal survey.

Considering “the degree of difficulty,” Sanderson said, Paulson deserves a “B-plus.”