Greenspan says flaw in market system

WASHINGTON (AP) - Former Federal Reserve Chairman Alan Greenspan says the current financial crisis has uncovered a flaw in how the free market system works and that has shocked him.

Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proven in the latest crisis to be wrong.

Greenspan said he had made a "mistake" in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions.

Greenspan said that he had found "a flaw in the model that I perceived is the critical functioning structure that defines how the world works."