What do you mean by "temporary dilution of shares"?
All the shareholders will get dividends, for example. The same as if there were no shorts. The only thing that those who lend their shares will lose is the voting rights - and those who don't lend their shares will vote normally.
That doesn't make sense. If I have to pay each share 5$, and I have given out 500 shares, but when it's time to pay out dividends 700 shares show up to claim them,then someone has to lose money right? Either I have to give 5$ to 200 shares that I never sold to people to begin with, or the 500 people who actually bought shares from me lose some of their portion to the extra 200. What am I missing if that's not the case? Surely that dividend money for those extra 200 shares has to come from somewhere?
All the shareholders will get dividends, for example. The same as if there were no shorts. The only thing that those who lend their shares will lose is the voting rights - and those who don't lend their shares will vote normally.