Former Treasury Secretary and Alcoa ex-CEO Paul O'Neill said he approves of three of the possible candidates for his former post.

“I think all of the people who have been part of the speculation about the next treasury secretary are worthy and they bring different things to the job,” said Paul O’Neill of three rumored candidates: former Treasury Secretaries Robert Rubin and Larry Summers, as well as current president of the New York Federal Reserve, Tim Geithner, in an interview with FOX Business Anchor Liz Claman on Tuesday afternoon.

O’Neill, a former Treasury Secretary himself, did not, however, consider Paul Volcker to be a good choice for the position.

“Paul’s been retired for a long time and I think he can bring a lot to the table, but I think he’d be well advised to be ‘of counsel’ to the new Treasury Secretary rather than take it again himself,” O’Neill said.

O’Neill does not think it necessary that the candidate have experience working on Wall Street, but mentioned he’s a “fan” of current J.P. Morgan Chase CEO, Jamie Dimon.

He also had strong feelings about the recent talks of a government bailout for General Motors (GM) and the automobile industry.

“If we’re going to put a lot of taxpayer’s money into these institutions, then I think we should insist that they finally come to grips with the fact that they have a failed business model,” O'Neill said. “Getting them to make hybrid cars or more energy-efficient cars is not going to solve the basic business problems they’ve got.”

O’Neill went on to explain that the Big Three auto makers, Chrysler, Ford (F) and General Motors, were having problems long before the current economic crisis, and suggested one of these problems is that all three companies are paying a premium for labor costs.

Unless Chrysler, Ford and GM tend to the employee compensation issue, competitors will have the edge, and any government backing, “is really a way of overcompensating people beyond what the market is demanding,” O’Neal said.

“It’s not a good thing for the federal government, as we seem to be increasingly tending to do, to become a participant in private sector activities,” O’Neill continued. “I didn’t want us to be shareholders. Being a lender was okay with me, being a shareholder in the private sector is a terrible idea.”

O’Neill believes one quick and easy way to prevent future problems in the housing market would be to require all home buyers be able to put 20% of the home’s value down, eliminating subprime borrowers.

“I’d get rid of anything that doesn’t have a 20% equity component so that people have a reason to want to stay in the house,” O’Neill said.

However, O’Neill did say he thinks lending institutions should work with homeowners to prevent more foreclosures, as long as the borrowers can provide a reasonable amount of money for payments.

In regard to taxes, O’Neill hopes President-elect Barack Obama will dispose of the current tax code and institute an new policy that is easier enforce, so that authorities could save the $400 billion in taxes that go collected each year .

“Then I think if you have $400 billion worth of new revenue, you can abate the pain,” O’Neill said.