If down votes had equal power, regardless of SP, this would be valid. However they don't. So the community can't police itself. The people who are willing/able to spend money get to police the poor.
So the community becomes lopsided. As with all anarchy, the strong bully the weak.
If all votes were created equal, this would truly be a working system... However then people wouldn't invest tons of money in the coin. Make no mistake, steemit is about making money at is core... With then"invested" making the "rules" about who gets to make that money how.
As for it being worse if nothing was done, all that down vote power used to clean up spambots and beggers and to reward good content over bad would have benefitted this site and the community 100x more than trying to flush out one person gaming the rewards system.
But it wouldn't have given nearly the power trip rush this little drama play has I suppose.