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The hedge funds cannot possibly deliver because they do not have the shares, and furthermore, they cannot buy in because Berkshire has only about 1,500,000 shares outstanding.

That's where your scenario is incorrect. After the hedge funds execute their naked short sales, Berkshire has 3.5 million shares outstanding on the market, only 1.5 million with voting rights. Following a massive failure to deliver, the hedge funds will sooner or later have to buy back 2 million shares, but they aren't restricted to buying back real shares. They can simply buy back the naked shares they sold, which then cease to exist. Any real shares they happen to buy can be delivered to the buyers of naked shares to settle their trades. Eventually all the trades are cleared, the hedge funds are flat, Berkshire drops off the threshold list, there are once again 1.5 million actual shares of BRK-A on the market, and all is right in the world.

What if the price went up too much and the hedge funds cannot afford to buy the m back? The hedge funds go bust, and the people who bought the naked shares are screwed, right?
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