A good summary of the situation, although it's not really fractional reserve. The problem is that in any report of short interest Alice is not shown to have tha

A good summary of the situation, although it's not really fractional reserve. The problem is that in any report of short interest Alice is not shown to have that IOU but rather her original 100 shares (in addition to Bob's). I understand the term short interest is appropriate because it reflects the consensus of bearish sentiment better, but it only works if the IOUs flying around can be backed by money (i.e. don't require settlement in the original shares). In the event that large amounts of the stock are bought, held and refuse to be sold to cover short positions the entire chain can collapse to Alice sells 100 shares to Gloria and the rest either suffer heavy losses or go completely bankrupt.