I think this analysis is somewhat simplistic, and ignores many of the aspects that make bitcoin lending unique. First of all, in a hugely volatile market like this, short selling is common, as are arbitrage and similar deals. Borrowing to make more money from deals like this is an obvious thing to do, and if they work out, they can easily make more money than the interest rate.
Borrowers aren't smarter than other investors. In fact I'd argue they are less smart. Any investor with a medium level of long term success would have cheaper sources of financing from their regular assets or lines of credit. They are equally likely to lose money as make it. The market is roughly zero sum.
Second, low interest rates in "the real world" are supported by what I've previously called (
https://bitcointalksearch.org/topic/m.816149) an economy of scale on collections infrastructure, which none of the lenders here has anything close to. Furthermore, getting low-rate loans from a bank (or even a credit card) is contingent on many things that do not apply here. We (often) don't ask for proof of identity here, or collateral, and have very little legal proof against you if you do choose to default. This significantly lowers the barrier to entry for people seeking loans (even for nefarious purposes that wouldn't stand at all in mainstream finance), but the lowered barrier to entry also carries a higher counterparty risk with it for the lender, which needs to lead to a higher return for the incentives to work out.
Good points.
Finally, possibly even larger than counterparty risk is simply exchange rate risk. Most of us need USD (or local fiat) a lot more than we need bitcoins, so their exchange rate with mainstream currencies is a crucial aspect of the value of a loan. Sure, we could lend out 100 coins now and give you almost $500 worth of coins, but if you pay us back 600 coins in 6 months and the value has dropped to $0.10, we've just lost a lot of money. The opportunity cost of me lending you 100 coins for 6 months back in June 2011 is pretty huge. We went from over $30/coin to around $2 in that period. I'm not saying that we could have predicted that $30 was the peak and sold there, but it's a major factor in risk calculations, and thus contributes significantly to interest rates.
If the volatility can affect both borrower and lender why would it increase interest rates?
If the volatility increases the interest rate, then can we hypothesize that this might indicate a general bull market mood? For instance, this would match up with the bitcoinica indicator where there is greater demand for going long than short.
Don't assume that we're idly sitting around becoming fat cats here. Lenders make a lot of money on successful loans, but that's amortized across defaulted loans, so to apply the word "shark" to us is insulting. A few of us are working on improving the credit situation to give lenders a better picture of credit history and creditworthiness, and overall to streamline the whole bitcoin credit business. These changes don't happen overnight, though
If lenders aren't making big bucks (eg. if we have lots of competition on the side of lenders which is possible - especially as the market matures), then there is a transfer of money from people who are paying high interest rates to those who are defaulting on loans -- which is also not ideal.
My general concern remains that high risk loaning increases the amount of speculation in the economy without increasing its more useful services/products base. My optimistic view is that the lender market could mature through use of an online anonymous trust system (or other means of securing loans), competition, shared information, and reduced rates.
