Professor John FitzGerald has told the Banking Inquiry that the crash could have been prevented by appropriate fiscal policy and action by the Central Bank and the Regulator.
Mr FitzGerald, who used to work for the Economic and Social Research Institute, said the disaster was foreseeable and foreseen and there was a need to tighten fiscal policy from 2000.
By 2007, he said, it was too late to prevent the crisis but the subsequent damage could have been reduced.
The economist said that in an economic review for the ESRI in 2008, he failed to see the collapse but that analysis changed six weeks later in a further assessment which said that Ireland was in recession.
Mr FitzGerald said it was a bad mistake not to predict the Irish collapse and he was totally wrong.
He said he made a serious mistake in not looking at bank data and it was a regret but it was not the ESRI's area of expertise.
The economist told the inquiry he was conscious there was a problem out there and made a case that Ireland would probably escape it and he said he was totally wrong.
If he knew there was a financial collapse elsewhere, he would have known there would be one here, but he said that was a cop out and he should have seen the problem.
Sinn Féin's Pearse Doherty asked why he had said in an ESRI medium-term review in May 2008 that the fundamentals of the economy were sound.
Mr FitzGerald said he did not stand by the analysis and not seeing the unsound nature of the economy was a bad mistake.
Mr Doherty also asked about reports that the Department of Finance had requested changes to a medium term review in 1999.
Mr FitzGerald said he was in Warsaw when he got a call to say the Department was "jumping up and down" over the article.
He said he thought their comments were political and should be ignored.
He said when he returned he found out that the author of the article had changed the piece to meet the Department's suggestions.
He added the full details were published shortly afterwards in the Irish Times.
The economist said that while the material did make its way into the public domain, it should not have been changed and it was most unusual.
He also said a senior official had sent a letter saying the ESRI had committed treason in saying that corporation tax should be increased and asked them to withdraw it.
The Department of Finance was "CCed" on the letter and the director of the ESRI got a phone call from the Department telling them to ignore the letter.
He said he was furious, adding that nobody could tell him what to do in his own report.
Mr Doherty also asked whether the Department of Finance had asked for changes to the medium term review in 2008.
Mr FitzGerald said that was not the case and that the Department was thoroughly grumpy, not helpful and upset but did not tell them what to say.
He said the incorrect prediction was their own mistake.
Asked about his career, Prof FitzGerald said he did not consider resigning because he felt he had done a good job over 30 years.
Mr FitzGerald also said it would have been very unpopular for the authorities to act against the property bubble.
"The Government went ahead as if there was no tomorrow and the Taoiseach expressed strong views about doubters" in 2005 and 2006, he added.
He said if you looked at economic literature before Economic and Monetary Union people were barking up the wrong tree.
He said countries needed to ensure they did not run into trouble during a period of low interest rates.
In Ireland he said "there was a degree of hubris that pervaded," he said. "You needed to use fiscal policy in a different way" to try to avert "disaster."
Relations between Finance and ESRI were 'frosty'
Asked whether there was any consultation with the Department of Finance or the minister prior to the bank guarantee, Mr FitzGerald said there was no consultation whatsoever and relations were quite frosty.
He said the Government should have consulted Patrick Honohan at the time about the guarantee as he was the international expert and there would have been a different outcome had he been consulted.
He told the committee today that Department of Finance rewrote their quarterly Spring commentary in 2007 for the minister, saying the ESRI "expect" a soft landing rather than there "could" be a soft landing.
He said the finance department was completely different now having gone through a cultural change.
There were loads of economists doing lots of interesting work and it was a very different world to when he spent 12 years there, leaving in 1984. He said there was too few economists then and it showed.
Fine Gael's Kieran O'Donnell asked why the institute had not highlighted the potential property bubble.
Mr FitzGerald said he felt they were isolated and people did not want to know.
When Morgan Kelly made predictions of a housing price collapse, he asked him to contribute an article to the ESRI and he told him it was great to have another voice.
Asked by Socialist Party TD Joe Higgins whether there was pressure to play down bad forecasts which might frighten the horses or cause shares to fall, Professor FitzGerald said that was not the case and their job was to call it as they saw it although subsequently there may be an effect.
A senior AIB economist approached the ESRI with concerns the Central Bank's stress tests were not sufficiently adverse.
The economist and another bank official met Prof FitzGerald about the issue in December 2005 before the banking crash.
Prof FitzGerald said that he believed the contact would have been approved by the board of AIB.
He said he gave them access to models used for the ESRI's Medium Term Economic forecasts.
The inquiry has concluded for today.
