Hank Paulson has a unique view of the 2008 financial crisis. Paulson was in charge of the U.S. Treasury as the economy headed into a financial crisis in 2007 and 2008. Paulson has republished his memoirs to mark the five year anniversary of that crisis, and included a new preface. An interview by Katie Benner of Fortune with Paulson looks at that crisis and the state of the economy at the moment. Paulson reckons that the next financial crisis, if there is one, will come from Freddie Mac or Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae or Federal National Mortgage Association (OTCBB:FNMA).

Fannie Mae

Reforming Fannie Mae and Freddie Mac

According to the interview, one of the most important parts of the policies that saved the economy from Armageddon in 2008 was the bail out of the Government Sponsored Enterprises Fannie Mae or Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac or Federal Home Loan Mortgage Corp (OTCBB:FMCC). Paulson thinks the institutions still need to be reformed, and he’s not sure it’s happened yet.

“Fannie Mae and Freddie Mac are a big part of the incentive structure that vested interests want to protect, along with the mortgage interest tax deduction and state housing programs. Those strong vested interests include homeowners, real estate brokers, homebuilders, and investors,” said Paulson in the interview with Paulson.

Paulson sees the reform of the GSEs as one of the most important parts of restructuring the financial economy in the United States. According to Paulson if he was given free reign he would “dramatically rein in the missions of the GSEs by not only eliminating their ability to hold mortgages, but limiting the mortgages they can ensure.”

Fannie Made, Freddie Mac: Another housing bubble

According to Paulson if the institutions are not reformed there is danger of another housing bubble in the United States, and another financial crisis arising from that bubble. The system that caused the 2008 crisis is still the foundation of the mortgage economy. The incentive structure has not changed enough to guarantee safety.

Paulson doesn’t think that the size of the banks in the United States is the most important problem facing the country. In fact the former Treasury Secretary thinks “Big capital and liquidity cushions are our best defense against failure.”

Fannie Mae or Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac or Federal Home Loan Mortgage Corp (OTCBB:FMCC), along with what Paulson calls the “shadow banking system,” are the biggest problems according to Paulson, and they could cause another financial crisis.