The crux of the situation I don't understand is (a) where does the claim that hedge funds would have to buy all the available shares on the market comes from? and (b) what exactly happens if [a] is true, but I'm not selling my 1 share that they need to return to you the share they borrowed? In this case, do they pay a penalty, does they go out of business and you don't get your share back, or does the whole system collapse on itself?
a) (hopefully) comes from an analysis of standardized and published contracts ("short positions"). Presumably, a hedge fund has to publicly announce which such positions they hold. So in theory, you should be able to dog through the data and sum up all the positions. If people on wsb did this, if it even works that way, I don't know.
Regarding b) I presume some clauses of said contracts are going to be used. Probably there is a part about some additional payments. Alternatively, the short positions could be extended (for a hefty price, I assume) or in the worst case courts and lawyers will get involved. Interestingly, some of the lenders don't even own the stock they lend. Sometimes they manage other people's stock. When these owners notice that they cannot sell their stock during a short squeeze, then things will get interesting.
