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1) It encourages new members to stay new.
I realize that no system is perfect, but this system encourages stagnation of ideas. If someone new signs up and starts with good karma and +1 bonus point, they have very low visibility and if one moderator disagrees once (mods overrated), even after tens or even hundreds of posts that were ignored by moderators regardless of value, they skip neutral and go straight to bad karma, losing their bonus point, and get relegated to anonymous postings. I have toughed it out for nearly a month, myself, and have found that it will probably be easier to create a new account than continue with this one. Which brings me to another point:
2) The potential to, and likely the actual occurance of, gaming the system is high.
All one needs is multiple frequently used accounts and one can moderate their own posts up and moderate opponents' posts down. There is nothing in place to stop them except metamoderation, and if they get demoted that way, they can just drop that account and build up karma in a new one (using the other successfully gamed accounts) to replace it.
It's very nice for OSTG to allow non-paying members of the internet public to participate, but with a system that is so discouraging of noob participation, is it really worth it?
Suggestions (because I'd be a jack-ass if my criticism wasn't constructive):
A) One possible solution would be a true feedback system.
Require an explanation of why a post was downgraded (without visible attribution of account name) and then moderators have to think about their rating rather than just modding something down because they consider it wrong. It would also give the damaged account holder some idea of what he said wrong. And metamoderators would have something to work with rather than a random post with no context and no reason to aid the community beyond their own personal vendettas.
B) Put a cap on modding up (or down) per account per time period.
If you record the number of mods versus who they modded and put the said cap into action, it will prevent vendettas from being actionable, at least, in the scope of one account per user. If someone doesn't like that they can't mod a racist post down because they modded the guy's on-topic, intelligent commentary on his favorite game as "overrated" earlier, then sucks to be him. He shouldn't have wasted his mod points on something so inane as disagreeing with an opinion.
To gamers of the system:
Malign me and mod yourself up all you want. I probably won't be posting under this account again anyway. At least, not for a few years. I'm going back to HardOCP for a while.
I humbly suggest the tag "callthewahmbulance"