It was the comment heard round the world. There was a time when every utterance of Alan Greenspan, who was the longest serving Federal Reserve Chairman in American history, could move markets. Young bankers hung on his every passing remark, his"Greenspeak." He was regarded as a "rock star of economics." Greenspan's book signings drew crowds and paparazzi.

But on Thursday before the House Oversight and Government Reform Committee, Greenspan, the foremost champion of unregulated markets, shrugged. This week's exchange between Greenspan and Henry Waxman, a California Democrat Committee Chairman, is breathtaking:

Congressman Henry Waxman: Do you feel that your ideology pushed you to make decisions that you wish you had not made?

Alan Greenspan: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology.

Waxman: The question is whether it is accurate or not.

Greenspan: And what I'm saying to you is, yes, I've found a flaw. I don't know how significant or permanent it is. But I've been very distressed by that fact. But if I may, may I just answer the question --

Waxman: You found a flaw in the reality --

Greenspan: Flaw in the model that I perceived as the critical functioning structure that defines how the world works, so to speak."

Greenspan, to be sure, must be given kudos for his astonishing honesty. The politic thing for him to do would have been to obfuscate and spin. For a man of his advanced years to admit to so grave an error before the all the world in this moment of exigency should not be taken lightly. Still, as we move deeper into the worst financial crisis since the 1930s, it is bittersweet consolation that it might have been caused, in large part, by a philosophical mistake by a former economic rock star.

[Image: Biggerpockets]