We are in the midst of a once-in-a century credit tsunami,"

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YORK (CNNMoney.com) -- Former Federal Reserve Chairman Alan Greenspan told a House committee Thursday that the nation will emerge from the current credit crisis with a "far sounder financial system."

"We are in the midst of a once-in-a century credit tsunami," Greenspan told the House Oversight and Reform Committee.

Greenspan said that whatever regulatory changes are made to respond to the crisis, "they will pale in comparison to the change already evident in today's markets."

Because of their hard-won experience, markets "will be far more restrained than would any currently contemplated new regulatory regime," he said.

"Investors, chastened, will be exceptionally cautious," he added.

In opening statements, Rep. Henry Waxman, D-Calif., committee chairman, said the current economic crisis could have been prevented "if regulators had paid more attention and intervened with responsible legislation. The list of regulatory mistakes and misjudgments is long and the cost to taxpayers and the economy is staggering."

Waxman put Greenspan on the spot, asking if he made any mistakes during his tenure as Federal Reserve chairman that may have contibuted to the mortgage crisis.

Greenspan said he made a mistake in presuming that lenders themselves were more capable than regulators of protecting their finances. He said he was "shocked" when that system "broke down."

"I still do not understand exactly how it happened," said Greenspan.

Greenspan offered some proposals for regulatory changes in his testimony, namely "to require that all securitizers retain a meaningful part of the securities they issue." In other words, he wants to require lenders to own or back part of the loans they issue, rather than pass off the risk to someone else.

Greenspan also stated his support for the $700 billion Wall Street bailout approved by Congress, which allows the U.S. government to buy bad mortgage investments from finance firms.

The bailout is intended to thaw the credit freeze by freeing up firms to offer new loans. "Indeed, the impact is already being felt," said Greenspan. "Yield spreads are narrowing."

Former Treasury Secretary John Snow and SEC Chairman Christopher Cox are also scheduled to testify.

Snow and Cox, in written testimony released before the hearing, both suggested that greater transparency be imposed on the markets.

Snow suggested a "more coordinated and less fragmented approach to financial regulation" with "greater international cooperation."

Cox said the SEC has adopted measures to strengthen investor protections against naked short-selling, which allows short selling without owning or borrowing the stock.

He said he has also launched an examination "of the effectiveness of broker-dealers' controls on preventing the spread of false information." This appears designed to address concerns that short sellers, who seek to profit from declines in stock prices, may spread rumors about companies to drive down prices of their stocks