The banking inquiry needs to find out why no action was taken at a political level to cool the economy and prevent the property bubble bursting, according to the president of Dublin's International Financial Services Centre.
John Bruton made the comments in a speech to be delivered at the Irish Banking Federation's banking union conference this morning.
He called on the inquiry to ask what action should have been taken between 2002 and 2006.
Mr Bruton said it should inquire whether a property tax, a ban on 100% mortgages or other measures should have been introduced to take the heat out of the property market and clamp down on reckless lending.
"Taking away the punch bowl, while the party was still on, was never going to be easy. It was never going to be easy politically, socially, or administratively. Yet that is precisely what has to be done if we are to prevent a bubble economy developing in Ireland ever again," Mr Bruton said in his speech to the IBF conference.
The former taoiseach said he believes there were two obvious, and interlinked, signs of disaster which were "studiously ignored" by the political and administrative system.
One was the fact that house prices were rising far faster than either the rate of increase in incomes, or the rate of inflation in other prices - while people were getting 100% mortgages.
"Once that process ended, and house prices were only rising at a rate at or below that of incomes, borrowers, who had been given 100% mortgages or were otherwise financially exposed, were immediately heading towards negative equity or inability to pay. That made a “soft landing” inherently unlikely," Mr Bruton said.
The second sign was the huge deficit that developed on the Irish balance of payments. Mr Bruton said the country was spending more abroad than it was earning abroad, fuelled by imported credit.
He said that given that devaluation was impossible, this deficit could only be reversed by an inherently unlikely dramatic increase in exports, or by a cut back in imports
"The latter could only be engineered by a recession of some kind. It was plain to see that such a recession would render many mortgages unsustainable. Why did no one in politics, in Government, in the Central Bank, or in the banks themselves do the basic arithmetic to work that out?," Mr Bruton asked.