If the price continues to fall and they can keep arbitraging, they could easily do quite well out of this (assuming they have a reasonable amount of reserves).
Yes, if they can make good on their promise (which I'm very doubtful about). Large holders of Tether have only downside risk now and speculators don't have much to win, so the market should mostly exert heavy downward pressure on Tether. I guess it comes down to whether the large exchanges will be willing to bail them out, which they might just do as Tether is too big to fail and no one wants the crypto party to end yet.
Every USDT they buy below 1 USD will increase their "backing level". So if they only stole let's say 5% of the funds to buy cars and boats, a price drop could slowly move them back to 100% backed.
Assuming they have all the USD somewhere, but locked in all kinds of instruments (bonds etc) they would not be able to pay out without rapidly increasing wait times. And that will drop the price more and more because it increases doubts on whether they really have the USD.
That drop further incentivizes them to use the USD that they do have quick access to to buy USDT on the market instead of pay-out their 1:1 redemption option. Which will increase the wait time even more and thus drop the price even further as USDT holders get spooked.
But in most of those scenarios the guys behind Thether will make a lot of money.
