Greenspan, called to testify before a congressional panel examining the regulatory system's role in the worst financial crisis since the 1930s Great Depression, underscored the breadth of the crisis meltdown.

"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Greenspan told the House of Representatives Committee on Oversight and Government Reform.

"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," he said.

Greenspan, whose views remain closely followed by the financial markets, was the US central bank governor for 18 years and stepped down in January 2006 before a years-long housing bubble burst.

Within months of his departure, the boom that flourished under easy credit, loose regulation and speculation collapsed, setting off cascading credit turmoil that has accelerated in recent months into a global financial crisis.

Critics say Greenspan had a role in the overheating that benefited from extremely low federal funds targets on interest rates, but the former central bank chief argued Thursday that he had already warned about a lack of credit oversight three years ago.

"In 2005, I raised concerns of a protracted period of underpricing of risk if history was any guide would have dire consequences," he told lawmakers.

"The crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount."

He accused securitizers, who bundled risky subprime and other mortgages into complex financial instruments, for the severity of the crisis.

"The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage origination, undeniably, the original source of the crisis, would have been far fewer," he said.

Demand for such products around the world was high because "they were wrongly viewed as a steal" by even sophisticated investors, abetted by the "uncritical acceptance" of credit ratings agencies that failed to highlight their risk.

The consequent surge in global demand for US subprime securities by banks, hedge and pension funds, "supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem," he said.

"It was the failure to properly price such risky assets that precipitated the crisis," he added.

The "whole intellectual edifice" collapsed in the summer of 2007 because the data in into the risk management models generally covered only the past two decades, "a period of euphoria," he said. If the models had included periods of stress, "the financial world would be in far better shape today."

Greenspan said he and others were "shocked" at lending institutions' failure to protect their shareholders.

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself especially, are in a state of shocked disbelief," he said.

"Such counterparty surveillance is a central pillar of our financial market state of balance. If it fails, as occurred this year, market stability is undermined."

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