Comment by regularfry
2 days ago
On a purely theoretical-finance level, I don't think the circular funding is actually a problem in itself. It's analogous to fractional reserve banking.
Whether there's also fraud, misreporting of revenue, or other misbehaviour of weird and wonderful classifications that will keep economics history professors in papers for decades is a separate question. I just find that people get fixated on this one structural feature and I think it's a distraction. It might be smoke, but it's not the fire.
Doesn't fractional reserve banking depend upon independence of the various customers? The widely-reported circular financing between AI players does not enjoy that.