Exchanges can manipulate basically anything they want and you've got no protection if you leave your coins on one, at least until voting pools become feature that users demand from the exchanges.

Wall Street is getting involved in the exchange market, and as soon as they do be very, very careful. Keep as many of your bitcoins as possible in your own wallet and regularly withdraw your entire balance all at once just to make sure the exchange actually has them.

It's virtually guaranteed that they are going to play undisclosed fractional reserve games with customer deposits.

There's nothing stopping this from happening right now. Mt Gox, Bitstamp, etc don't trade bitcoins on their order book - they trade database entries that represent bitcoins (and USD).

Any of them could trivially create as many database entries as they want to trade with and get away with it as long as not all their customers try to withdraw at the same time.

People who trade on exchanges tend to leave large balances sitting there for a long time. For an unscrupulous exchange operator this is the perfect opportunity to start playing fractional reserves.

Suppose you're an exchange operator and you notice that only 90% of the customer deposits never move (as in get withdrawn to an external bitcoin address). You could take half those deposits and do whatever with them (speculate on an other exchange, buy hookers and blow, anything) and your customers won't notice until too many of them try to withdraw and you don't have enough bitcoins any more to comply.

Can you clarify - how do I get naked shorts then? There has to be some minimum requirement, I can't just sit at home and draw them on paper for me to use.

  really?  At a minimum you need a contract to sell an asset in the future.  If the selling party doesn't hold the asset or an option on the asset to cover the trade, its naked.  If they have borrowed the asset or brought an option to cover, its not.  Maybe reading some material on how financial markets work would help, rather than conspiracy sites that say what they think JP Morgan is or isn't doing.

Of course, if their intent is pure manipulation, not necessarly for profit.

But the special club has the knowledge and the financial means to let things go a bit more its way...

Exactly.

Until you withdraw from an exchange to your own wallet you don't actually have bitcoins - you have some company's promise to give you bitcoins on demand.

It's far easier to break a promise than it is to break cryptography.

OK, right ... if you use SEPA and "long and poor delay" to wire money.
That why i use the "more" fast method of virwox ... but restricted by fee and amount of money.