"The American people will never again be asked to foot the bill for Wall Street's mistakes. There will be no more taxpayer-funded bailouts. Period."
-- President Barack Obama, after passage of financial reform legislation

The financial reform bill addresses many causes of the financial crisis. Among a long laundry list of reforms, the new regulation creates a systemic risk council to address firms that may be "too big to fail." It makes rating agencies such as Moody's (NYSE: MCO) accountable for the ratings they issue for securities. It requires banks such as Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) to spin off their proprietary trading businesses.

But one of the complaints about financial regulatory reform is that it didn't address the biggest bailout of them all: Fannie Mae (OTC: FNMA.OB) and Freddie Mac (OTC: FMCC.OB). Now the administration and Congress are just beginning to take on the momentous task of reforming our nation's housing finance system, and opinions run the gamut. Rep. Ron Paul, R-Texas, weighed in on how he thinks we should restructure the housing finance system. He also offered his thoughts on the final version of financial regulatory reform. Paul is in favor of privatizing the housing finance system and says he thinks the financial regulation bill did not usher in true reform.

Here is an edited transcript of our conversation:

Jennifer Schonberger: How should we restructure the U.S. housing finance system? What should we do with Fannie Mae and Freddie Mac?

Rep. Ron Paul: Sell it because the majority of mortgages are probably still pretty good. But we should never have these guarantees. I argued against Fannie Mae and Freddie Mac for 10 years, saying that just the implication that there's a line of credit to the Treasury means that there will be an artificial number of houses built.

So yes, there's probably a lot of good mortgages. Find out what they're worth. But when the Fed buys these mortgages, we don't know what they're worth. As a matter of fact, even the Chinese government owns a lot of these, and they monetize them for us. So you need the market value of these mortgages [first], then people should buy them. The ones that are worthless will get wiped off the books.

But the government shouldn't be in that business. Only the market can determine these values. I have no trust or faith in the politicians and the bureaucrats that I know in Washington that know anything about value, because they can't know. Nobody's smart enough to know that. Only supply and demand and the people evaluating these mortgages will decide their worth.

The market would have a "Fannie Mae" and "Freddie Mac." People would bundle these together, and sell them, and there would probably be a private rating agency. Somebody has to evaluate them -- you'd get higher interest for the ones that are riskier. Right now, everything was thrown in a bundle, and a lot of them became worthless. Then we had the derivatives piled on. After they became worthless, the Federal Reserve buys them up at nominal value and sticks the taxpayers with these. The sooner we get that type of system behind us, the better.

Schonberger: On financial reform, do you think the newly passed regulation solved "too big to fail" and reined in systemic risk? What do you make of the legislation that has passed?

Paul: I didn't like the legislation, and I voted against it. It's sort of a bill that plans how we will sort out the pieces the next time we have a similar crisis. They didn't change policy. They just thought that if we had more regulations, and more protection, then we would take care of it in a different fashion. They're trying to patch up the old system. It can't work. It hasn't worked this go-around.

Just pretending that we can continue with the same monetary policy, the same Federal Reserve system, and all these guarantees sort of concedes that we're going to have another bubble. If we have regulations and plans for how we distribute these assets later on, it just says that nothing has changed. That's another reason why there's no confidence in the market. People realize they're just propping up a system that has already failed.

Schonberger: Do you think anything good has come from this legislation?

Paul: The best thing that has come out of it was the fact that we ended up with 320 people in the House that supported transparency of the Fed to find out what they do in secret, and that they have to be accountable to the Congress. Even though that didn't get passed, more and more people now understand that the Fed is the culprit and not the solution. They created the bubble, they're responsible for the problems we have, and they will never be off the hook. I think that is just great.

For Paul's thoughts on U.S. fiscal policy, click here.

For more on how we should reform Fannie Mae and Freddie Mac:

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. You can follow her on Twitter. The Motley Fool has a disclosure policy.