NEW YORK (Reuters) - Fannie Mae and Freddie Mac were based on a troubled business model with conflicts of interest between private profits and public services, Treasury Secretary Henry Paulson told CBS television on Monday.

"This was a flawed business model," he said. "It never should have happened."

The mortgage giants had to be bailed out because of their importance to the mortgage market and the financial system, Paulson said.

The government's plan made sure that taxpayers were protected, but that stockholders would not be insulated from losses, Paulson said.

(Reporting by Pedro Nicolaci da Costa and Richard Leong, Editing by Chizu Nomiyama)