Greenspan: It's Not Just a Crunch, Folks; It's a 'Credit Tsunami'

Former Fed chief admits flaw in ideology during the boom years.

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Grab a life raft. Former Fed chief Alan Greenspan didn't mince words today when he characterized the financial crisis as a "once-in-a-century credit tsunami" in testimony before Congress.

What caused the tsunami and how policymakers can shimmy the country out of it were the focus of the House Committee of Government Oversight and Reform's hearing. Greenspan said he's in a "state of shocked disbelief" and admitted a flaw in his thinking about the free-market system. "I was going for 40 years or more on the perception that it was working well." (During his tenure, he opposed tight regulation of financial companies.) Today, he called for tighter regulation. He also said he was "partially wrong" about credit default swaps.

Here's the full text.

Paul Kedrosky of Infectious Greed says the most interesting point in the hearing was when Greenspan said: "The housing bubble became clear to me sometime in early 2006, as it was bursting, in retrospect. I did not forecast a significant decline because we have never had a significant decline in prices."

Kedrosky's translation: "Got that? Greenspan only noticed the housing bubble in 2006, as it was bursting, and his main reason for...thinking prices would not decline in the U.S. is because the U.S. has never had a significant decline."

Politico points out that there's been a big shift in thinking about Greenspan's role in the 1990s and the effect his monetary policy had on the credit meltdown. This NYT story on the Greenspan legacy is worth checking out.