[RedDevil]

Originally Posted by Fat Charlie

... The fact that shenanigans were involved in putting it up for sale isn't my doing, and, in fact, is a big part of the problem. A bunch of little guys buying and holding doesn't risk the whole system, fat cats making tons of money by making things up and driving companies out of business is what risks the whole system.

Indeed. But by doing so the fat cats took a risk. There's no way to completely cover the risk of a naked short position, as in theory the stock could rise beyond whatever coverage the hedge funds have.

Now they get burned. They either have to swallow a big loss - simply pay whatever the stock is at - or keep issuing new naked shorts in the hope that those holding the stocks finally start to cash in, at the risk of losing ever more. At one point they will be forced to stop anyway.

The question is what happens if they are banned from writing new shorts while their debt is greater than their value. They'd go broke, but who covers them, e.g. who then pays for buying back the shares they shorted? The NYSE?
Because that's the party that will ultimately want to prevent this scenario.