A break down of what’s going on with brokerages and how the short squeeze started

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GameStop short float is currently around 250%.
For a second, let’s just imagine there are only 100 shares total of GameStop.
This means that person A owns 100 shares. Person B is a short seller and borrows them, sells them to person C who buys them. At this point the stock is 100% short.
Person C then lends those shares to Person D who is a short seller who then sells them to person E who buys them. The stock is now 200% short.

Person E lends 50 of them to person F who is a short seller who sells them to person G who buys 50. The stock is now 250% short. So now person A, C, and E all own the same 100. The brokerage sights are limiting buying because they are attempting to unwind that! If everybody right now demanded their shares. The brokerage sites should be on the hook for $34.5 Bil worth of stock that doesn’t exist.

That’s fricked up but here’s where it gets crazy. There were never any controls on monitoring if somebody’s shares had been sold short twice.

When a short seller sells shares. They are immediately paid. So cash is in their accounts. When a person buys shares they pay money out and theoretically own shares. But because the short selling wasn’t tracked brokers do not possess the shares they were putting into the market. If everyone were to request their shares they would default on their obligations and fold. Meaning they only have 100 shares and person A, C, and E all have a claim to those shares. Meaning the buyers are left fighting over who has shares. And the short sellers are left holding the cash they collected. It gets super messy.

If Robinhood were to default. Short sellers win. Then most likely the fed has to come in and save the buyers spending tax dollars. That’s why the fed is getting involved.
By limiting shares and removing the ability to continue to short, they are trying to unwind this mess without it causing a panick.

That is why the broader market is down. Not because of shorts covering... but because of the potential for brokerages to collapse. I’m guessing Robinhood, TD, IB, and E-Trade are on the hook for a vast majority of the shares that don’t actually exist but multiple people own.

Imagine if person A says he doesn’t want to lend his shares. The broker and clearing house has to figure out how to balance person B-G sourcing shares from somewhere else.

If the brokerages don’t go under. Short sellers, the hedge funds, are on the hook. If they do go under... economic recession. Retail investors once again left holding the bag.
Institutions don’t use these little guys. They use IB to trade and then they have the physical shares transferred into accounts at 5/3rd. If IB were to go under their fund would be fine. But most brokerage accounts are only insured up to up to $250k.

This is a failure of the system as a whole. This is a problem created by the top .001% and they are trying to call it a Reddit rebellion. frick that.
This is totally a short selling fault. I think the outcome of this is that short selling gets banned.

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