Paulson says US is on its way to another housing market crash

Ben Southwood
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T does not reform Fannie Mae and Freddie Mac, the state-backed lenders that guarantee mortgages and were implicated by economists in the financial crisis, the US may face another housing crash, former Treasury secretary Hank Paulson will say in an interview with Bloomberg tonight.

“Today, the government is guaranteeing 90 per cent of the mortgages,” Paulson will say. “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.”

Paulson called for reform, saying that the fact Fannie and Freddie have swung into profit should not blind policymakers to the dangers of a lender not restricted by market rigour.

Paulson also warned that the growth in US welfare spending – known there as entitlements – was pushing the budget continually further into the red, and called on Congress and the government to at least slow its growth, for example by raising the retirement age and means-testing Medicare – the old-age healthcare benefit.

Meanwhile new unemployment insurance claims rose to a four-month high in the final week of March, according to figures from the Department of Labor. A 28,000 jump brought the total of new claimants to 385,000, compared to 368,000 the same week a year ago.