In his keynote speech to the party conference in Bournemouth, Mr Cable said the collapse of the major US investment bank Lehman Brothers showed "we are in the middle of a major financial earthquake".
He attacked the culture of "binge lending" secured on vastly inflated property prices by financial institutions and "binge spending" by the Government.
As part of his plans to cut public spending, Mr Cable said top civil servants should be forced to reapply for their jobs and face cuts in wages and benefits.
Mr Cable, who was given a standing ovation by delegates, said there was a new "mood of austerity" in the country after the excesses of New Labour.
He said: "Our Government didn't cause this crisis. Its biggest folly was hubris: the delusional claim to have abolished the boom and bust cycles to which all capitalist economies are prone.
"They forgot that financial success breeds excess; unearned rewards feed greed; and overconfidence leads to folly.
"New Labour incubated a culture of financial gambling with other people's money which has contributed to the collapse of trust in financial institutions. It also bred a dangerous dependence on debt."
He urged Gordon Brown to resist propping up the falling housing market and instead allow prices to reach a "sensible level".
Mr Cable also warned against compromising the Bank of England's independence by telling it to slash interest rates.
He continued: "There has to be effective regulation to stop a repetition of the binge of irresponsible lending.
"And, more fundamentally we need to confront our national obsession with property. Houses are homes to live in; they are not gambling chips."
The new national mood was a "reaction against greed, excess, waste, tax cheating and selfish, self-indulgent behaviour".
Mr Cable said: "It's an intolerance of binge lending by banks and binge spending by government.
"It is a craving for economic and personal security, sobriety and discipline; a demand that there is respect for fellow citizens and for the natural environment."
In a wide-ranging speech, Mr Cable, the Liberal Democrat's deputy leader, defended Nick Clegg's tax cutting agenda.
He said: "I keep reading in the press that some of our activists don't like the language of tax cutting; they think it is 'right wing'.
"But I don't see what is 'right wing' about wanting to cut the taxes of millions of people who earn less or barely more than the equivalent of the minimum wage."
Mr Cable said the Prime Minister had gone from "Mr Boom to Mr Bust in record time".
But he focused his attack on David Cameron, whose economic policy was to "share the proceeds of recession" by offering tax breaks to the rich.
The Liberal Democrats aim to use Whitehall efficiency savings to fund public spending priorities and additional tax cuts.
Mr Cable said civil servants earning more than £100,000 would be forced to reapply for their jobs rather than make the cuts by imposing tough pay deals on staff at junior levels.
He said: "We've got to stop the gravy train of management consultancy in government; stop questionable government IT projects like that for the NHS and insist that procurement is from the cheapest, open source; and take an axe to the overgrown thickets of quango land.
"The coward's way of dealing with public spending is to sack or squeeze the pay of low paid public sector workers.
"The correct way is to start at the top: require every non-front line public sector employee on £100,000 or more to reapply for their jobs.
"Those allowed back would take a cut in pay and public sector pension entitlement.
"And politicians cannot lead a crusade against self-servicing public sector extravagance unless they lead from the front; so MPs and Ministers must accept deep cuts in numbers and fringe benefits like pensions."
Mr Cable accused the Tories and SNP of "gimmicky populism" by calling for lower rates of fuel duty at a time of high oil prices instead of setting an environmental agenda.
In Norway, with its own oil reserves, prices at the pumps were among the highest in Europe but hauliers were not blocking the streets of Oslo in protest, he said.
"They aren't because instead of the gimmicky populism espoused by our Conservatives and Scottish Nationalists, their political leaders say that resource conservation and the environment must come first.
"They advocate 'green taxes' on oil. Britain needs a political party with the courage and maturity to spell out the same message."
High prices were an "advance warning of the need to move rapidly to a post-oil economy," he added.
Comments