What you're saying might be true, but it comes at quite a large cost. The two most obvious costs are:
1.) further price depreciation in STEEM
2.) less market confidence in STEEM/ Steemit and/or larger numbers of Steemit users leaving the system.
As it is, starting from August, STEEM has one of the ugliest performing price charts that I've ever personally witnessed. Another 95% drop from here and I don't foresee anybody who's a current member of Steemit being a happy member.
You're missing my point...
Proof of stake whether distributed or otherwise suffers from a fatal flaw in reasoning, which is that stakeholders will always act in the best interests of their investment.
This is proving to not be true. Instead we have people who are looking at this from a different angle. Taking actions they know will alienate users, forcing the users to dump and this puts downward pressure on the price. Once the price has dropped, then the same stakeholders can buy back in at the lower price and consolidate their level of control over the platform.
It is not good for steemit at all, but there is SOME good in that some of the people bailing out right now are taking huge losses and these losses are subsidizing the further democratization of the currency. This is good for steem, but it's a shitty situation for steemit because it's feeding a cycle of alienation.
The truth about all proof of stake is this...
Stakeholders will act to protect their stake so long as it aligns with their other interests. But stake is a sunk cost investment. If it doesn't go up, then logically, forcing it go down, in order to sweep up a bunch on the bottom as other stakeholders bail out is a valid strategy for any stakeholder. Might be shitty for everyone else though. It's mostly going to depend on the dollar averaged cost of the investment and the perceived longterm value of the currency.
As a side effect it's also democratizing the currency a bit more since no one has the risk appetite for huge amounts of this coin right now. Lots of smaller players probably do though.
I see your point. My point is that it's possible to reach a point in which no one will buy back in and those so called whales will be bag holders.
When everyone and their mothers are trying to sell and no one takes the thing seriously enough to invest over $10 into it, it's dead, just like the thousands of penny-stocks that I've watched trade themselves down into "triple zero" dollars which eventually reached zero daily volume. People come to see the light that there are better options to multiply their wealth and they move on.
I don't think Steem is too far from that point. As it is, I'm convinced that very few "outsiders" to the platform so much as consider taking a bite on Steem. I wouldn't be surprised if something like 99% of all Steem buying were made by Steemit users.
If that's true and we're losing existing users in droves, which we seem to be, AND the majority of people remaining have lost faith in the future of the platform, which very well could be true, especially with the "captain" (Dan) abandoning ship just the other day, well, that's the recipe for no bid.
"It's still flawed. Flagging should be democratic and it should have as much impact on the person giving as the person receiving." I absolutely agree with what you say @williambanks Excellent analysis. I received several flags not for the quality of my posts, but because I was voted too. Amazing ... I can not feel like doing something good while it lasts this thing and I think that the level of content will subside.
This is also why an investor class is important, it incentivizes large stake holder not to do what you describe and leave the influence to the minnows/dolphins.