No, they are evidence of people who woke up to find out that they owe you their shirt, in addition to six decades of indentured labour of their children, grand-children, and yet-to-be-born great-grandchildren... Deciding that maybe they aren't going to pay you right this instant.
If you're shorting on margin, and the market moves too far before your position gets closed... Your position might get wiped out, your margin might get wiped out, and you may owe an unbounded number of dollars to your counterparty.
Generally speaking, your broker will then sue you for that money... But lawsuits take a long time to resolve. And to a bystander, this sort of thing looks just like a naked short falling apart.
Whether the shorts were naked or not before this started, the shorts are unquestionably bankrupt with GME at or above $300.
When shares are traded out from under a short, and there’s no where left to borrow them from, and the hedge funds can’t meet collateral requirements for their short interest, and the broker needs to liquidate their position but they come up about $20 billion dollars short...
That’s when you have massive failure to deliver and the whole corrupt organism goes into CYA mode and tries to shut down buying and bring the stock price back in-line with their models.
> Whether the shorts were naked or not before this started, the shorts are unquestionably bankrupt with GME at or above $300.
That is not correct.
You have no idea whether or not the shorts currently open, as of today, were opened when GME was worth $12, $50, or $400.
It's entirely possible that many of the $12 shorts closed when the stock first rallied.
> That’s when you have massive failure to deliver and the whole corrupt organism goes into CYA mode and tries to shut down buying and bring the stock price back in-line with their models.
The reason trading on shitty retail brokerages like RobinHood was shut down was because the clearinghouse collateral requirements went through the roof, and shitty retail brokerages like RobinHood weren't able to instantly come up with a couple of billion dollars to wire to the clearinghouses. (They did, eventually, which is why buys resumed on Friday.)
You get what you pay for with brokerages. They are an abstraction layer over a highly technical, 19th-century layer of physical settlement of stocks. When the market isn't going crazy, this abstraction works, with minimum collateral requirements. When the market is going crazy, this abstraction stops working, and their counterparties start demanding billions of dollars in collateral.
I agree with everything you said except one nit: Robinhood still hasn't fixed their liquidity issues because they only let each account buy a maximum of one (1) GameStop share on Friday.
If you're shorting on margin, and the market moves too far before your position gets closed... Your position might get wiped out, your margin might get wiped out, and you may owe an unbounded number of dollars to your counterparty.
Generally speaking, your broker will then sue you for that money... But lawsuits take a long time to resolve. And to a bystander, this sort of thing looks just like a naked short falling apart.