"(not MMs)" being the operative comment there...
If an MM extends their privilege to an important client where NO STOCK IS AVAILABLE TO LOAN, I would agree. That's what the regs are supposed to be putting an end to... There are 3 and 13 day periods in which the mechanics of the market should take care of that (a FTD warning, and a forced cover after 13, if they ever get that right!).
As for the second point, there would be less market activity, which some describe as "liquidity" -- I'm being simplistic... but if there's no DUMB ASS that can SHORT a stupid company with too few shares of stock free trading, how can any market ever get any shares to slosh around?
Reality is, the market participant that's handling new shares coming to market KNOWS that shares are coming, and it's not rocket science to call around and figure out that a borrow won't be hard in a few days on a stock, if one isn't available today... they earn COMMISSIONS from those trades, so YES they are going to try and make that kind of scenario happen.
This is what drives people nuts about the current system -- it's still that X factor -- there are still those who can anticipate what's coming, and actively seek a market to profit from the reality as they see it. If it doesn't work out, the players are forced to cover (as they should be).
As I said, this is simplistic, and mostly based on old views of the way things used to be. The borrow system is not global, or automated, STILL to this day, nor do I personally ever expect to see that in my lifetime....
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