Going belly up and restarting a new hedge fund is a very possible scenario I would think. They may even get a government buyout. It’s been done 1000’s of times before in many businesses and societies solution to mismanagement.
The burden is shifted to the Market Makers that allowed the over leveraging to happen. Yes some banks are going under and they should not be bailed out or we’ll be doing this again in another 15 years.
IMO Bank stocks are going much lower over the coarse of this squeeze, the banks with the least exposure to toxic naked shorting will be diamonds in the ruff when the dust settles.