In testimony to the US Congress, Spitzer urged lawmakers and regulators to urgently address the bond and credit problems roiling the financial industry which have forced some big firms to writeoff billions of dollars in troubled securities.

"If we do not take effective action, this could be a financial tsunami that causes substantial damage throughout our economy," Spitzer said, according to a transcript.

He said the financial difficulties of bond insurance companies could have a widespread effect because they insure a broad range of bonds and securities such as municipal bonds, college loans and even relate to museum budgets.

Spitzer cautioned that individual investors who own bond portfolios could also sustain losses if the industry faces further losses and writedowns.

The trillion-dollar bond insurance industry has been shaken by a lingering housing market slump which has triggered a widespread credit crunch and spilled over the bond market and stock markets.

"There is a general tightening of credit, which means less money available for companies to borrow so they can expand and consumers to borrow so they can buy homes, cars, appliances and other goods. This comes at a time when the economy is already weak," Spitzer, a Democrat, said.

The governor of the state where many of America's largest financial firms have bases, urged banks and financial companies to implement reforms to avoid further losses.

But he also called on government regulators and credit rating agencies to club together and find solutions to the financial problems.

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