For Pete's sake, it's the rules of the game. You might have an objection to naked shorting. but you can't redefine naked shorting as "pretending" because you don't like the rules.
They're not pretending to follow the rules of the market, they are actually following the rules of the market. Having actual posession of the item at the precise moment of sale is not a rule of the market in question. Lay investors still get their shares delivered, so I have no idea what you're worrying about.
No. If someone bought all the traded shares of overstock.com at a particular point in time, they would've bought 107% of the available shares. So it would be impossible for all their shares to get delivered.
Generally, if short interest gets very high many, many professional investors get interested in buying the stock for precisely that reason. Buy enough and recall your stock, ie make it not available for borrow and you create a short squeeze sending the price into the stratosphere and then you can sell into the squeeze making a tidy profit. If you are short and your stock gets recalled you could theoretically lose your entire net worth. Something similar actually happened in Germany with Porsche trading VW stock and VW shorts getting killed during the financial crisis.
The fact that no one was willing to do that to OSTK stock tells you how shitty the company is and how overvalued the stock was.
