The Truth of Finance: From a National Tool to a Game of Human Nature

Many people can talk about finance, but the vast majority don't truly understand: what exactly is finance within the modern state system, and what is it actually doing?

I break down the essence of finance into two layers: the superficial function and the underlying logic. Once you understand these two layers, you won't be led by market sentiment anymore.

I. The Surface: Finance is the Modern State's "Fundraising Machine"

On the surface, finance appears very positive: it is a set of institutional tools for pooling scattered money to accomplish major tasks.

• It raises funds from ordinary people, enterprises, and institutions;
• It then channels these funds to governments, enterprises, and industries, supporting expansion, innovation, and growth.

The rise of modern finance is the best example:
The Netherlands' global dominance back then relied not on sheer military force, but on a mature financial system. Traders raised funds extensively from the public and lent them to the government, maritime trade, and colonial ventures. The gold and silver plundered from overseas repaid the loans and expanded the nation's total money supply, ultimately propelling the Netherlands to the peak of European power.

This is the bright, positive, constructive side of finance:
Finance = Capital mobilization system = Engine for the state and industry.

But this is only the surface. The reality of finance is far more brutal and bloody.

II. The Core: Finance Plays a Game of "Human Nature and Leverage"

The true core of finance is a game of ten bottles and three lids.
Once money is concentrated, human greed pushes it to constantly pursue excess returns, eventually leading to a loss of control.

Let me explain with the real logic of an industry:

Capital Inflow, a Seemingly Perfect Cycle
A small-to-medium financial institution absorbs funds from various channels.
During an industry expansion phase (like the former new energy sector), market sentiment is high, and capital pours in frantically.
The institution, having received the money, must find projects to match the promised returns, thus lending heavily to expanding enterprises.
Enterprises use the money to expand production lines. The institution's assets and liabilities appear matched on the surface, and investors share the profits.
Everything looks perfect, reasonable, and win-win.

Addicted to Expansion, Costs Keep Rising
As the scale grows, funds get locked into long-term projects, and money in the market begins to dwindle.
To continue expanding and maintain its size, the institution can only raise more funds by promising even higher returns.
High salaries, branch offices, bonuses, promotions... everyone gets swept into the illusion of "high-speed growth."

Good Projects Done, Starting to Cross the Red Line
Quality projects are limited. Once they're exhausted, and the institution still needs to cover its high funding costs, it is forced to invest in high-risk projects.
Risk quietly accumulates, while dividends and performance figures keep stimulating greed.
No one is willing to stop, and no one dares to stop.

Defaults, Bank Runs, Chain Collapse
A project defaults, fails to repay. The institution starts robbing Peter to pay Paul.
Ultimately, the capital chain breaks, and payments stop.
Investors lose everything. The institution's assets are forcibly liquidated, with a massive panic sell-off.
Coupled with internal "off-the-books" deals and project transfers within the industry, risk spreads like a virus to the entire sector.

Reflected in the market, this means:

• Asset prices plummet inexplicably
• Panic spreads
• Banks call in loans
• Corporate cash flow breaks, leading to bankruptcy

III. Who Pays for This Game? — The Financial Slaves

Those who ultimately foot the bill are always the ordinary people who are the last to buy in and get locked in at high prices.

I call this group: Financial Slaves.
They don't owe money to anyone specific; they are trapped by financial cycles, bubbles, and leverage.

The most typical "financial slaves" around us today are the generation who bought property at the peak of housing prices.
After the asset bubble bursts, mortgages become a long-term burden. Houses turn from assets into liabilities. They spend half their lifetime income paying for the previous round of financial expansion.

This is the coldest, most real side of finance:
It can build nations, and it can also create slaves.

IV. The Only Way Out

There's only one way to avoid becoming a financial slave:
Be fearful when others are greedy, and greedy when others are fearful.

It's not about how many indicators or news you understand, but whether you can see through:
Is current finance mobilizing capital, or is it playing the lid game?