Today Alan Greenspan appeared at a House committee hearing to address the current economic crisis, where the NYU and Columbia alum stated that there is a fundamental flaw in the free market system, much to the chagrin of conservative deregulators who have sailed along with lofty catch phrases like “laissez faire.” Yes, the four term former Fed chairman has admitted that he was wrong to oppose more stringent regulations on derivatives, since it has led to immoderate speculation.

Bloomberg reports:

Former Federal Reserve Chairman Alan Greenspan said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

``Yes, I found a flaw,'' Greenspan said in response to a grilling from the House Committee on Oversight and Government Reform. ``That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''

Greenspan said he was ``partially'' wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected. Forecasting is an inexact science, he said…

``As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue,'' Greenspan said. That would give the companies an incentive to ensure the assets are properly priced for their risk, advocates say.

While some (John McCain) may think that the fundamentals of the economy are strong, it seems like it’s time for a serious economic overhaul if Greenspan recommends “one strong national regulator.” During the hearings today, Committee Chairman Henry Waxman went so far as to vilify Greenspan by saying that the entire economy was paying the price for the former Fed chairman’s decision to ignore the suggestion to tighten regulation. Finger-pointing won’t get this economy healthy though; we need medicinal change.