Where does your mortgage go? Every month, hundreds of pounds vanish from your bank account, every month for maybe twenty-five or more years. But where does it go? Your bank or building society? Chances are your guess is wrong.

Your mortgage is fairly likely to have been flogged off to someone else, a nameless bond investor looking for a safe investment. Same goes for that car loan, as the dealership has probably sold that on too. Your credit card? Well, the company sold off the rights to your credit card repayments years ago.

Welcome to the wonderful world of securitisation, the fastest growing market in London's financial markets, where debts are created and then sold on to investors. The market for these debts has expanded from almost nothing 10 years ago to over £100 billion last year.

I'd better first explain what securitisation is, seeing that no one else in the financial press can be bothered. While hardened investment bankers often have problems understanding securitisation, at heart, it is pretty simple. I'll take a straightforward example, for my sake as much as yours, and we'll see how we go. Finance is neither complex nor boring, advisers just say that so they can charge exorbitant fees and invest your money in rubbish.

So, let's say I have a bank that lends out lots of money as mortgages. Each month, mortgage-payers give me a fair amount of cash: let's say ten million pounds a year.

The traditional strategy for a bank like mine would be to make money from the interest margin - the difference between the cost of my funds and the rate that I lend at – I would keep some of the margin as profit and lend on the rest as more mortgages. Hopefully, my bank could continue growing by a few per cent a year. However, this growth would be steady, safe and boring. I would also have loads of debt to manage on my balance sheet.

If my bank decided to securitise my mortgages, then I still make money from lending, but I would no longer be saddled with the risk of managing my existing debts. I’ll explain. My bank is earning a million pounds a month from house-owners mortgage payments, so I decide to sell off one-tenth of this revenue, one million pounds a year. Together with an investment bank, I set up a separate company, a so-called special purpose vehicle, into which I transfer the rights to the mortgage repayments. The new company can then sell bonds – investment instruments – allowing investors to receive a slice of this revenue.

As a result, my bank has received all the money from the mortgages years early, minus a small percentage to allow for the transfer of risk. A bird in the hand is worth two in a bush. If I sold five years worth of mortgage repayments at a million pounds a year, then it is likely that I can get at least £4.5 million from the sale, instead of waiting five years for £5 million. And I can use all this upfront money to create and underwrite more mortgages at a lower interest rate - this should more than offset the money it cost me to get the cash.

Not only do I have all this cash now, I have taken loads of debt off my balance sheet so it looks a lot healthier, so I don't have to worry so much about what will happen if the economy goes wrong. It means that, instead of needing deep pockets to keep lending money out, I have turned into a specialist mortgage 'originator', and other people – mainly big pension funds and insurance companies – take on the risk. In a sense, it is a very efficient financial division of labour.

However, I will probably still administer the mortgages, mortgage payers will still pay me the money, but I just hand over the money to the bond investors as soon as I receive it. Now, investors will only buy up my revenue stream packages, known as 'asset-backed bonds', if they trust that my mortgage payers will cough up every month. So I make up a contract for these investors that says exactly what I will do if my mortgage-payers don't deliver, when I will do it and which hard men I will send round to bash on front doors.

Gone are the days when there was discretion, when you and your bank manager could come to some kind of 'arrangement'. Today, it is all credit scores and "Loan Recovery Departments" with exacting and excruciating procedures about how they'll get the money back. One phone call a week after the first missed payment, another call a week after that. . . it's all laid out.

The securitisation market is huge now. Originating in the US, it has expanded massively in Europe over the last five years. This recycling and selling of debts is thought to be one of the reasons for the low interest rates currently available because banks make large profits from creating mortgages and then selling them on by securitising them.

And it's not just mortgages. If there is a revenue stream, someone somewhere is trying to securitise it. Newcastle United season ticket holders? The revenue has been securitised. Got a personal loan? The bank's securitised it. Just got a £9 billion loan to buy out Railtrack? Better start securitizing – the line access charges, once paid by the train operating companies – such as Virgin and Connex – to Network Rail are currently being packaged up and will be sold off to asset-backed bond investors.

All it takes is a steady flow of money. Theoretically, I could securitise myself, though I'm probably not rich enough.

So we have this really tricksy financial market, based in London, with billions flying all over the place in exchange for money that hasn't been made yet. Guess who's taken it the furthest?

Yep, that's right, the Italians. The Italians are there with their market stall flogging off anything with a revenue stream that isn't nailed down. And if it is nailed down, then the nails are unique accessory no one else has and you can have them too if the price is right. In the last two and a half years, the Italians have managed to raise over 22 billion euros (about £15 billion) from securitisation. It all began because they had to do something to keep Italian government debt down in the run-up to the launch of the euro. So, they jumped on the securitisation bandwagon as a means to get money they were owed upfront. They securitised unpaid national insurance claims and raised 4.5 billion euros. It was so successful that they did it again the next year. And the next year. Then they started securitising other areas of government revenues, like sales of state-owned buildings.

With governments selling a whole range of revenues to raise money upfront, securitisation has the potential to be as large, and as important, as privatisation. On the one hand, securitisation could allow governments to take advantage of the latest advances in the financial markets for their, and our, benefit; on the other, unscrupulous governments could use securitisation to sell off their country's future in order to give them a short-term bail out.

Unless we, the public, understand what securitisation actually is, how can we tell if it is in our interest and hold our leaders to account?