Bank lending to consumers and business have experienced a huge spike in growth over the past decade. There are many reasons for these explosive gains. According to some experts, such as Nassim Nicholas Taleb author of The Black Swan, one of the principal causes driving this explosion in lending was the fact that more disposable income was chasing safe investment havens.

According to Taleb, this may appear to be a contradiction, but with the Fed keeping treasury securities yields low the sudden influx of investment money began to look elsewhere. It didn't take long for investors to realize that mortgages were a relatively solid investment opportunity. The only problem with mortgages was management: How do you manage 1,000 or more mortgages? International investors were looking for safe havens, not increased complexity. Not to worry, new investment vehicles were created through which mortgages could be bundled as investment instruments, rather than landlord headaches. Soon, bundles of mortgages were further bundled, these bundles were tied into other assets and, as we all now know, a house of cards was created.

Immediately afterwards, bank lending was drastically curtailed due in large part to the collapse of the US mortgage backed securities. These securities are now deemed 'toxic'. Certainly, government intervention and the propping up of the financial sector should help the financial services sector rebound. However, stricter regulation will limit the more creative approaches to financial services.

Key Financial Services Vocabulary

asset
bundled mortgages
creative approach
financial sector
financial services
government intervention
house of cards
influx of investment
investment instrument
investment opportunity
landlord
lending
mortgage
mortgage backed security
principal cause
safe haven
spike in growth
strict regulation
to bundle mortgages
to curtail lending
to prop something up
toxic security
treasury yield

ExerciseUse the following words or phrases to fill in the blanks. Each word or phrase is used once, except for one word or phrase which is used twice.

curtailed
bundled mortgages
instruments
lending
principal cause
financial services
mortgage backed
portfolio
assets
safe havens
toxic
house of cards
yields

• Consumer _____ has been _____ over the past few months.
• Currently, treasury securities _____ are extremely low.
• Bundles of mortgages were turned into investment _____.
• Every investor should maintain a portfolio with a wide range of _____.
• There are very few truly _____.
• Many _____ securities are now considered _____.
• _____ refers to products which help consumers invest, save and manage their money.
• Some of the most famous banks recommended bonds made up of _____ to clients before the finanical crisis in 2008.
• The _____ of the crisis was the _____ built on bundled mortgages.
• It's important to keep track of all of the _____ in your portfolio.

• Consumer lending has been curtailed over the past few months.
• Currently, treasury securities yields are extremely low.
• Bundles of mortgages were turned into investment instruments.
• Every investor should maintain a portfolio with a wide range of assets.
• There are very few truly safe havens.
• Many mortgage backed securities are now considered toxic.
• Financial servicesrefers to products which help consumers invest, save and manage their money.
• Some of the most famous banks recommended bonds made up of bundled mortgages to clients before the financial crisis in 2008.
• The principal cause of the crisis was the house of cards built on bundled mortgages.
• It's important to keep track of all of the assets in your portfolio.

By Kenneth Beare, About.com Guide

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