Translation:It is dangerous to lend money to that person.
の is indeed a nominalizing verb. It makes the verb into a noun phrase. Since adjectives describe nouns, when using adjectives to describe verbs, it is necessary to make verbs into a noun phrase. In English we typically do this with the gerund or using the infinitive, and in Romance languages we only use the infinitive form, but in Japanese, this is done with either の or こと.
Moreover, when verbs take other verbs as their objects (e.g. "I forgot to tell" ['to tell' being the object of forgot]), the verb turned into an object is also in a noun phrase, and in Japanese would also use の here (in most cases).
Ex: 私の大秘密を教えるのを忘れてしまったーI forgot to tell you my big secret ;)