I understand how this short sale "chaining" can result in a stock being over 100% shorted without any illegal naked short selling taking place, but why wouldn't this chaining not result in a short squeeze and therefore bid up the price?
I'll walk through an example and maybe someone can point out what I missed.
Let's say we have a market for some stock. There are only 5 traders (Alice, Bob, Chuck, Dave, Eli) and 100 shares that are all owned by Alice.
Bob borrows all 100 shares from Alice and sells them to Chuck.
Dave borrows the 100 shares from Chuck and sells them to Eli.
Thus, Alice and Chuck are each owed 100 shares, Bob and Dave are in debt for 100 shares, and Eli owns the 100 shares.
Thus, Bob and Dave must now compete for the 100 shares owned by Eli, which then drives up the price.
I don't know how the synthetic long shares mentioned fit into this.