Right, seems like a similar problem to banks and leverage. People can short more in aggregate than exists the same way the money multiplier exists for banks. But there are bank runs and it's built on trust, so that's risky too and we make people hold on to a certain amount to cover what they lend.

I guess I'd just prefer they use call options to cover the shorts instead of borrowing. No leverage or multiplier effect there. Gets too high, just execute the call. Am I also missing something there?