The problem as I see it is this:

People on here complain about fractional-reserve banking - well how many in the "Lending" thread are doing just that?

*Full Disclosure: I have a very small account with Patrick Harnett, whom I know has 10K exposure or so to BTCST, but to my knowledge (and as Patrick has stated) investors funds are not directly exposed to BTCST*

It seems that many of the companies on the forum hold undisclosed exposure to various lenders, some of whom may be "robbing peter to pay paul" but at the very least they're loaning this out to others who spend it in the bitcoin economy, these funds then often finding their way back to other investment funds and increasing their liability.

The problem with all fractional reserve systems with fixed interest-rate savings, whether the major banking system or in a small economy like this one, is that a major default (Lehman triggered it in '08) could bring the whole system crashing down and leave depositors with either nothing or massive haircuts on the wealth they thought they had.

We end up with a situation here whereby debt is effectively being made into a form of currency in BTC terms, so if things continue as they are we could easily end up with a situation in which over 21M BTC is owed between various people in the BTC economy.

Whilst I think this is the way it's going to end up going regardless, I do find it alarming that people are slowly starting to invest in debt with ever-increasing leverage, particularly to completely unknown borrowers (and often on a massive scale - BTCST has been able to take in millions of dollars and nobody has enough info to track the guy down if he left).