As much as I love being able to short to myself at near 0 interest and harvest yield, I think it would be better if shorts competed to offer higher interest persistently, rather than only initially.
My idea is to allow shorts to be bought out and taken over part way through the term by someone offering higher interest. Such a purchase would effectively force the original shorter to exit at the current feed, and would only be possible if such an exit was profitable, or at least break even. The original shorter would receive his original collateral, plus the difference between the current value of the bitAssets and the initial value at creation, minus accumulated interest. The purchaser would pay for all of this in order to assume ownership of the short position. The expiration date would remain the same, only the interest rate would increase.
With this change, interest rate competition is no longer a separate competition run in each block, but persistent ongoing rate competition, so it can no longer be gamed by opening shorts in low competition blocks when no one else is watching. Also, holding both sides of a short to harvest yield risks exposure to the asset as it should, because the short position may be taken over by a genuine bull willing to pay higher interest for increased BTS exposure, leaving the harvester with the asset unhedged.
Let me know if any of this is unclear and I'll try to expand on it.