The machinery
behind the money.
Every balance has a counterpart. Every transfer has conditions. Understand the contracts, institutions, and settlement arrangements that make finance work.
- 01 / The claim
- What is owed?
- 02 / The counterparty
- Who must perform?
- 03 / The transfer
- When is it final?
- 04 / The exposure
- Who carries the risk?
I. Fields of inquiry
Read the balance sheet.
Then read the obligations.
Work from the mechanism to the consequence. Each subject opens with a specific question about how the system operates.
Banking & money
What happens when a bank makes a loan?
Follow the entries on the balance sheet and the obligations created alongside the deposit.
Examine deposit creationPayment infrastructure
Who does what behind a payment?
Separate the gateway, processor, acquirer, and payment facilitator. Trace the responsibility behind each role.
Map the payment chainLiquidity & capital
Can it pay today? Can it absorb a loss?
Distinguish available funding, the value of assets and liabilities, and the capital that bears losses.
Separate the three testsCapital markets
How much of the return has come back in cash?
Read performance through timing, distributions, and remaining value. Establish what each metric measures.
Read the return measuresII. A closer examination / Settlement
A trade is agreed.
Settlement is
another matter.
An agreement creates obligations. Completing the exchange requires the cash, the securities, and the arrangements that link their transfer.
Read about delivery versus paymentMissing cash or securities can still prevent settlement. Replacement costs and funding needs remain separate questions.
III. Research library
Accounts of how
finance actually works.
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A NAV-funded distribution can raise DPI without an exit
Borrowing against portfolio value can finance a distribution and increase DPI without an asset sale. Net asset value, debt service, and the source of distributed cash must remain visible.
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An EPS-accretive acquisition can destroy buyer value
EPS accretion measures accounting earnings per share, not acquisition value. Debt financing can lift recurring EPS while price and integration costs exceed the value of the acquired cash flows.
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Bond duration versus maturity
Maturity identifies a repayment date; duration measures sensitivity to a specified yield change. Coupon timing and embedded options explain why the two measures diverge.
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Cash pooling converts bank balances into intercompany exposure
Physical cash pooling can lower external borrowing costs while replacing a subsidiary’s bank deposit with an intercompany claim. Group savings and participant risk require separate accounting.
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Credit approvals determine which repayment outcomes a model can learn from
Credit approval policy determines which applicants generate repayment labels. Models trained on accepted borrowers therefore face selection and reject-inference problems when applied more broadly.
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Credit unions and banks: ownership, surplus, and capital
Member ownership changes a credit union’s governance, use of surplus, and capacity to raise capital. Share-account balances remain distinct from institutional net worth.
The Residuum approach
Follow the contract.
Reconcile the numbers.
We examine finance through the claims people hold, the institutions that carry them, and the conditions under which money changes hands. The useful explanation survives a closer look at the balance sheet.
A starting point / Bank balance sheets
A loan creates a deposit.
Follow both sides of the entry.
Begin with the balance-sheet mechanics of bank lending. Trace the asset, the liability, and the constraints that shape what happens next.
Read how bank loans create deposits