Former Federal Reserve chairman Alan Greenspan has called the recent turmoil in the global financial markets a "once in a century credit tsunami", reports BBC.
Speaking before Congress, Mr Greenspan, who stood down as Fed chairman in 2006 after 18 years, said he expected the US unemployment rate to jump sharply.
He added that recovery in the US housing market was "many months" away.
Returning to the crisis in the banking sector, he said he had been left in "a state of shocked disbelief".
Mr Greenspan made the comments to the House of Representatives Committee on Oversight and Government Reform.
Committee chairman Henry Waxman, a Democrat, suggested that Mr Greenspan had added to the problem by rejecting calls for the Fed to regulate the sub-prime sector among others.
"The list of regulatory mistakes and misjudgements is long," Mr Waxman said.
"Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite," he added, saying that the mantra became "government regulation is wrong".
One of the main criticisms against Mr Greenspan was that he left interest rates too low for too long, thereby fuelling the housing boom - which later turned out to be unsustainable.
However the former bank boss said he had made a "mistake" in thinking that relying on banks to use their self-interest would be enough to protect shareholders and their equity.
Mr Greenspan's comments come as significant uncertainty remains in global markets, amid fears that a number of key economies are or have already entered a recession.
World markets have been especially volatile, prompting intervention by governments to prop up banks and boost the financial sector.
Russia has moved to boost its currency, in the wake of a sharp slide in oil prices and declines in foreign investments. In the past week gold and foreign reserves are down $15bn (£9.3bn).
French President Nicolas Sarkozy on Thursday has mooted setting up a state-run investment fund to help protect national firms and aid small firms in difficulty.
Hungary unexpectedly increased its interest rate by three percentage points to 11.5% on Wednesday in a bid to boost its currency, the forint.
Earlier key indexes saw sharp falls, with South Korea's Kospi index down 7.4%, its lowest close since July 2005.
Hong Kong's Hang Seng index was down 4.7%, at its lowest level since April 2005 while in Australia, the benchmark index closed down 4.4%.
However, in mid afternoon trade the Dow Jones Industrial Average climbed 2.6%, helped by rising oil prices on expectations that Opec would cut output.