Edit: I must say that even after I read it I have trouble understanding how any of that happens except through well connected people moving money around to their own benefit.

The banks are on the hook, but it’s not really the banks because it’s not their money they are lending out.

So I really understand them.

And I agree with you. "Leverage" means multiplying both risk and reward. Given a system where losses are socialized, and wins are privatized, it makes complete sense to do LBOs as much as possible - the people with money win, and everyone else loses.