Your buddy has an orange, he lends it to you, you sell it back to him. You borrow it a second time and sell it back. He now owns one orange, and two IOU for an orange, and you owe him two oranges. The short interest is 200%, maybe unwise, but no trickery involved.
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The problem is when it's the only orange known to exist in the world. Then the borrowing party is guaranteed to default if the lending party wants so.
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Lending party almost never wants the borrowing party to default, defaulting reduces the likelyhood of the debt being honoured...
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You know the borrower will have to default the moment he tries to sell your orange back to you. At that point, it doesn't matter what price you pay for the orange. He will have to give that back to you + all other assets you want to take him for in order to avoid defaulting.
Really, and what if the defaulting party has some other, prior creditors with greater priority?