Financial watchdog boss 'tried to gag MP who warned Northern Rock was heading for disaster'

Vince Cable was told Northern Rock was not caught up in the US sub-prime mortgage fiasco

Financial Services Authority chairman Sir Callum McCarthy telephoned Lib Dem deputy leader Vince Cable in September and accused him of "scaremongering."

He told Mr Cable Northern Rock was not caught up in the sub-prime mortgage fiasco in the US.

Hours later the bank admitted it had been hit by the cheap mortgage collapse there.

And it is now clear Mr Cable was right to argue the bank had offered too many cheap loans to people who could not repay them.

"Sir Callum said I was scaremongering, that there was no problem with the bank and that it had a good loan book, and any problems were due to international markets beyond its control," said Mr Cable.

He said Sir Callum accused him of adding to the panic by criticising its management.

"I told him it was obvious the bank had acted recklessly offering multiples of income mortgages," added Mr Cable."