Prominent Wall Street economist, Henry Kaufman, said on Friday that the Federal Reserve allowed the global credit crisis to happen and must be redrawn as a tough regulator to stop big financial institutions from taking excessive risks.

The world is now in the midst of the worst financial crisis since the Second World War, Kaufman said in a speech titled Who is Primarily Responsible for the Credit Crisis? he gave to a conference in New York.

I am convinced that the misbehavior of some would have been much rarer -- and far less damaging to our economy -- if the Federal Reserve and, to a lesser extent, other supervisory authorities, had measured up to their responsibilities, Kaufman said.

Kaufman reached prominence when he correctly predicted higher inflation and interest rates when he was chief economist with Salomon Brothers in the 1970s and 1980s.

He is well known as an expert on monetary policy and the mechanics of markets.