Congress must act now to reform America's financial system before the country meets the same fate as Greece, said members of the House Financial Services committee. Greece is currently operating at a 13.6 percent budget deficit, and ratings agencies have dropped the country to junk status.
"Unless we change course, I fear America will soon experience its own Greek tragedy," said Rep. Spencer Bachus, R-Ala.
The key to avoiding a crisis in America is to create more transparency in credit default swaps markets, according to Rep. Paul Kanjorski, D-Pa.
"Some very smart and sophisticated investors have characterized naked credit default swaps as 'weapons of mass destruction' that can 'create imaginary value out of thin air,'" said Kanjorski.
But some economic experts say blaming the crisis on credit default swaps -- which are a form of insurance to protect investors in mortgage securities if the borrower defaults -- is misguided.
"[Credit default swaps] is a villain du jour in the Greek debt crisis," said Anthony B. Sanders, a finance professor at George Mason University. "In fact, [credit default swaps] actually served a positive role that alerted everyone."
Sanders and other economic experts appeared before the committee Thursday to discuss the causes of Greece's debt crisis and what lessons can be learned from the country's mistakes. All five experts agreed that credit default swaps were not the underlying problem that led to Greece's debt.
Rather, the credit default swaps market alerted investors to the country's budget gaps, said Stanford business professor Darrell Duffie.
"It provided both an early warning system and a way to transfer risk to others."
The main reason Greece's debt ballooned out of control was because of its use of off-balance sheets, which allowed the country to conceal its actual debt.
"Greece could have solved the problem by bringing everything on-balance sheet and making it transparent," said Sanders.
Congress must enforce the use of balance sheets to avoid growing debt problems in America, according to Sanders.
"Off-balance sheets are devastating. We have got to end that. We have got to bring it on the balance sheet. We should have all this stuff visible."
"We know that one of the causes of the financial crisis was essentially these off-balance sheet vehicles, and yet essentially, we have Uncle Sam engaged in worse," said Rep. Jeb Hensarling, R-Texas.
When discussing calls for Greece to sell territory to pay down its debt, he said, "I hope and pray that the United States is not on the path to becoming Greece without the Parthenon. There are lessons to be learned here for us."