"The Storm - the world economic crisis and what it means" By Vince Cable.We’ve heard of the paradox of thrift, but there is also the paradox of foresight. People who see things coming are very rarely rewarded for their presience, in fact they’re usually dismissed as a bit looney, much as Vince Cable was back in 2003/4 when he was telling anyone who’d listen that the housing bubble was out of control and would lead to economic disaster. He was firmly put down by Gordon Brown then chancellor, for “writing articles in the newspapers that spread alarm, without substance, about the state of the British economy”. Well, now we know.Cable wasn’t alone in being vilified for stating the obvious. Professor Nouriel Roubini, of New York University, was and still is called “Dr Doom” for his forecast that the credit bubble was going to collapse. In my own small way I was dissed by estate agents and economists for writing articles in this newspaper in 2004-6 criticising the banks for handing out mortgages in excess of 100% at five or six times salary. Nonsense, I was told, how else can people get on the “housing ladder”? Irresponsible to talk the market down.Cable is right to locate the origins of the financial crisis in the housing market, rather than in the inverted pyramid of exotic derivatives built upon it. It was the greatest asset bubble in human history, a global madness, fuelled by government subsidies and Asian lending, that led to the tripling of house prices, and the creation of trillions of in imaginary wealth. This became securitized into toxic financial instruments, like the infamous collateralised debt obligations, which were sold on to other banks.People often ask why banks handed mortgages to people who couldn’t afford to pay for them. It was because the prevailing wisdom, in financial institutions and in government, was that house values always rise; therefore if the householder defaults, the property can simply be repossessed and sold on at a higher price. It was a no lose bet. Until everyone lost when gravity reasserted itself, house prices collapsed, and all those myriad bonds based on mortgages became impossible to sell.People in Scotland still get very angry if you say that house prices are too high. Incredibly, local authorities like Edinburgh and Dundee are now offering 100% mortgages to first time buyers rejected by the banks who are now - rightly - demanding 25% deposits. Utter madness. Actually using public money to lure people into negative equity. The continuing decline of the housing market - Cable believes UK house prices have another 20%-30% to fall - ensures that the banks and local authorities will have more write downs, more toxic assets, more losses which the public sector will have to pay for.This is where it gets messy for Vince. The paradox of foresight means that you are called upon to give solutions for the very problems you sought to avoid. In trying to get to a solution for the world economy Cable - like the Irishman- wouldn’t start from here. Unfortunately he has to. And he has to stick to Liberal Democrat party policy, which which is against nationalisation of the banks. Cable says banks will have to be regulated “as if they were nationalised”. But he goes on to doubt whether the public will continue to finance the failures of this radioactive private financial sector with its obsession with bonuses. He should grasp the nettle: either banks are part of the market economy, in which case they must be allowed to go under, or they are “too big to fail” in which case they should be nationalised. The moral hazard is too great to allow banks to carry on speculating safe in the knowledge that the taxpayer will come to the rescue when things go wrong. As he says, this is “socialism for the rich”.Which brings us back to the paradox of thrift. Cable is torn between orthodox Keynsianism - borrowing to spend - and the realisation that we are all spent out and need to save. “The longer term need will be to boost savings for pensions, long term care and the financing of mortgage deposits. There is a long period of austerity ahead”. Damn right there is, but the Liberal Democrats aren’t calling for it. Their policy, when last I looked, was for tax cuts, increases in spending and yet more subsidies first time buyers.Denial over housing has been replaced by denial over debt - public and private. No one wants to tell the truth: that we have been spending beyond our means for decades and now have to face the reckoning. The great danger, as Cable warns, is that democratic governments will not be prepared to tell the voters what they don’t want to hear. Foresight is a terrible thing.