Alan Greenspan, who headed the U.S. Federal Reserve for more than 18 years, on Thursday called the current world financial crunch a "once-in-a-century credit tsunami" during testimony to the U.S. Congress.
Greenspan said he and others are in "shocked disbelief" because they assumed lending institutions would protect their shareholders from the credit market fallout.
In his prepared testimony for the House Oversight Committee, Greenspan blamed the problem on big demand for mortgage securities from investors who didn't think the housing boom would end.
Greenspan noted the employment situation in the U.S. will likely get worse.
"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Greenspan said.
"Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity."
Battered by foreclosures and falling sales and prices, the problems in the U.S. housing sector touched off a credit crunch that has gone global.
Some critics of Greenspan have pointed the finger at him, saying his policy of cutting interest rates to levels as low as one per cent earlier this decade fed the U.S. housing bubble. Greenspan and the Fed cut interest rates to the low levels as they sought to keep the U.S. economy from heading into deflation.
Greenspan said Thursday that he believes a stabilization in the U.S. housing market is months away.