Former Federal Reserve Chairman Paul Volcker explains to Steve Forbes that Fannie Mae and Freddie Mac need to be liquidated eventually to restore the U.S. mortgage market.  Steve Forbes: Fannie and Freddie. What should be done now?  Paul Volcker: Well, now is the big question. What should be done in the long run is very simple. We don't want more institutions like these institutions that are neither fish nor fowl, half public, half private; when things are going well they take care of their private responsibilities, when things are going poorly they get the public support.  Volcker: We don't want those institutions--that is the lesson we've learned. Now you say, "What do we do about them now?" The mortgage market is totally dependent upon those institutions which are, for all practical purposes, government-held institutions which are supported by the government. Everybody knows they are supported by the government, and they, in turn, are supporting the mortgage market. So you can't say tomorrow, "liquidate Fannie and Freddie" because you wouldn't have any mortgage market for a while.  So we have to develop, I think, a plan over the next few years as to how to gradually, in effect, liquidate Fannie and Freddie and develop some new institutions that make a reasonable, effective mortgage market. We used to think we had the best mortgage market in the world. Turns out we now have the worst mortgage market in the world--overstated a bit. But we don't want a purely government-supported mortgage market, which is what we have now.  Download The Intelligent Investing Podcast Here.
Former Fed Chairman Paul Volcker says that eventually Fannie and Freddie need to be wound down and replaced by new firms.