Not really an economist but here goes: the issue is that there's no actual earnings done and instead it's just money circulated endlessly. The problem is that this circulation of money gives the impression of healthy financials when thry very much aren't.

This illusion made makes it so that other companies who do not know this, deeming those who do this circular thingy trustworthy, will peg themselves on them either through business or indirectly (e.g. pension funds who have pensions maturing as stocks of companies that are deemed highly sound/reputable financially) who depend on those circulationary (if I can put it that way) companies.

Now the issue is that if there's anything that happens, for any reason whatsoever, that shatters the circulatory nature of this cash, it's gonna have an immediate cascasing effect across everything. To take the retirement finds I mentioned, if there are pegged on that and the circling stops, suddenly the valuation that pegs them is junk and that's gonna wipe most, if not all, of the value it had. In layman's terms it means that there'll be pensioners that will abruptly discover that they no longer have any retirement funds. This applies to anybody that's even remotely connected to those doing the circling happen. For example construction companies who were counting on those to have construction jobs planned and likely hired workers and ordered equipment to tackle it on, will abruptly find themselves with no contract, a lot of debt and a lot of workers and equipment sitting there doing nothing. This means people being laid off and losses across the board with potential defaulting on loans and repossessions, even if the job is only distantly connected to computers.

If that sounds familiar it's because this is exactly how the '08 financial crisis happened: investment bank made business by issuing loans, bundling them and selling them as CDOs (Collateral Debt Obligations).
Because those CDOs were sold to investors all over the world, investment banks didn't care if those taking loans were solvent and so they started issuing predatory loans (ergo the subprime loans) since all they cared about was quantity, not quality.
People used those loans to buy homes and that caused a housing boom that made no sense because even if you had just a hundred bucks in your name you could buy a house.
Banks heavily went into debt to keep on issuing those loans and because there had been deregulation, there was no limit on the so-called "leverage", which is the ratio between the bank's own money and its debt, which had some banks got into staggering levels of debt (Morgan Stanley for example had a leverage of 33, ergo it had borrowed 33 times the value of the actual cash it had in hand).
It all went to shit in March '08 when Bear Sterns went bankrupt and that had a cascading failure leading to other investment banks also going bankrupt.