If a major were to want to buy a junior and he was worried about a naked short position, could he not buy the assets from the junior leaving the junior as a cash shell? That would leave the junior company to sort out the return of funds to shareholders...

My guess is that at some point this will all blow up and the broker dealers who have counterfeited the shares are going to have to pay the companies for the shares they have issued without asking them. If the think about it, this is like a company doing a fund raising, where you issue more shares and dilute exisiting shareholders, but you don't get the funds deposited in the company account. Will probably lead to another government bailout.