Greenspan Admits Flaw in Regulation Stance (Update)

Updated from 11:58 a.m.

Former Federal Reserve Chairman Alan Greenspan told a congressional committee on Thursday that the financial crisis is a "once-in-a-century credit tsunami" on Thursday and acknowledged "a flaw" in his perception of the boom period that he oversaw as Fed chief.

Greenspan has received much criticism for supporting low interest rates and lax regulation, which helped fuel the subprime lending spree that led to the current economic malaise. The former Fed chief noted that he raised concerns in 2005 that prevalent risk-taking could have "dire consequences," but said he did not expect the level of panic that has occurred.

"This crisis ... has turned out to be much broader than anything I could have imagined," he said in remarks to the House Committee of Government Oversight and Reform. "It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount. Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment."

Legislators hammered away at Greenspan, criticizing his laissez-faire ideology and his failure to predict how excessive risk-taking on risky mortgage securities and their complex derivatives could create a financial meltdown. Committee Chairman Henry Waxman (D., Calif.) pointedly asked the former Fed chief whether he was wrong, and Greenspan acknowledged that he had been "partially" wrong about the need to regulate credit-default swaps.