All old people sing the same song, and have been singing it since old people were invented. The chorus runs: "The old-fashioned ways are best."

Nowhere is that more true than in finance. I say that not because I am an old person (although I am), but because it is true now; was true yesterday and 5,000 years ago; and will be true tomorrow and 5,000 years from now.

That doesn't mean new is bad. New can be very good. But new is usually bad when it tries to replace methods and techniques that common sense suggests cannot be bettered. A good example is the fact that the value of stocks and shares can go down as well as up.

Back in 1999 and 2000, we were told that a new paradigm had arrived: stocks would henceforth only go up. In hindsight, that idea was just plain wrong, but a number of respectable people began to subscribe to the theory. Thanks to the Internet, they said, stock values could only ever increase.

The old-fashioned wisdom was ignored, and believers in the new paid a heavy price when the unavoidable truth once again made itself plain, and stocks went down. And down. And down. It took the markets five or six years to recoup the losses they sustained.

The "sub-prime" problem in the US, which has sparked volatility in stock markets around the world, is another good example of what happens when traditional ideas, thousands of years old, are replaced by new thinking for no good reason.

Banks and mortgage companies take in deposits from the public and pay interest on the money. They then lend that money to people at a higher rate of interest. The difference, less the costs of running the bank, is profit. That's everything you need to know about banking. If you can close your eyes and explain it to your children, you could get a middle-level job in a bank tomorrow. (I exclude the Bermuda banks from this particular explanation, since they have been lending to sub-prime characters for decades without any consequences at all. Plus, Bermuda banks don't foreclose. They help their customers work things out.)

To become a senior executive of a bank, however, you would have to understand one more thing. The people to whom you lend the money must stand a fighting chance of being able to pay you back. It's not much good lending to a person who doesn't have a job, for example, because they won't be able to afford the repayments. So, over the years, banks have established a series of formulae that enable them to assess how likely borrowers are to be able to repay their debts. If the maths says you're unlikely to repay, you won't be able to borrow.

Sounds about right, doesn't it? That's because it is right. This isn't rocket science, it's banking. Pay your depositors five percent, charge your borrowers seven percent and a three percent arrangement fee, and you're laughing all the way to the bank (unless you're driving into town from Southampton). It worked in ancient Greece. It worked in ancient Egypt. It worked in Europe in the Middle Ages. And then, recently, it was abandoned in the United States, and now the world is in crisis.

"Prime" is the rate at which banks lend to their best customers. Today, it's about seven percent. Everyone other than the best-heeled borrowers are referred to as "sub-prime". That means that the quality of their security (a.k.a. collateral) is lower than that offered by prime borrowers. Since the risk to the lending bank is greater, it charges a higher rate of interest. The term should be "supra-prime".

A less confusing term would be "second-rate". Other than, say, someone who deposits a million and then borrows half a million, almost everyone is a second-rate customer. By definition anyone who needs to borrow may, or may not, be able to repay. Even the best people fall ill, get fired, or otherwise find themselves unable to repay from time to time. Why even I, the greatest genius who ever lived (my Mum said), got into a financial mess a couple of weeks back, as I reported.

US banks, desperate to inflate their earnings, started bending their rules a few years ago. They began lending to people who were unlikely to be able to repay their debts if they or the economy encountered the slightest bump in the road. The banks did it to maintain their growth pattern, so as to be attractive to investors, and so as to allow the bank executives to claim their bonuses. When US house prices, which had raced upward, began to race downward, the worst-case borrowers could not repay their debt.

In many cases, the lending banks didn't care, because they had sold the debt to companies that merge such debts into clumps and sell them on to some other ship of fools. Those debts can be bundled together and separated again and change hands so often that a piece of them may end up in your pension portfolio. Knowing in their heart of hearts that they have made bad deals, bad banks pass the debts off to suckers such as us.

If anyone in the world were capable of showing a little restraint, this wouldn't have happened. But no-account borrowers wanted to buy homes they couldn't afford. No-account bankers wanted to lend so that they could book an immediate profit, and damn the consequences. The rest of us are now damned and living with the consequences.

While all of the foregoing is a highly simplistic view, it's true enough. That is essentially what happened. Michael Douglas and his film character Gordon Gekko in "Wall Street" notwithstanding, greed is not good. It's ruining Bermuda and it's ruining the rest of the world, too. When we abandoned the old-fashioned notion of making a consistent profit by following the time-tested formulae, we condemned ourselves to our current state of uncertainty.

How long will the sub-prime crisis last? Six months, a week, or forever. It will take six months to sort out the mess. Or, another act of true financial barminess might come along next week and distract us. Or, this could be the death blow to the global economy that a number of people believe it to be. Don't know which. Can't say.

The best thing to have done, and to continue to do, is to ignore it. It's a sideshow. It does raise scary questions about the derivatives market, but those markets already had giant question marks hanging over them. Stick with the old wisdom. This too shall pass.

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A reader wrote to ask whether my reference to the Year of the Potato last week was satirical. It wasn't. Next year will indeed be the Year of the Potato. I discovered this - where else? - in the Human Rights Commission's (HMC) annual report. Expect a press release soon to the effect that the HRC will become the HPRC.

The UN is planning a series of fact-finding trips around the world and consulting with 'Sir' Bob Geldof to help decide whether 2009 should be the Year of the Couch Potato. The last two sentences weren't satirical either, just silly.