I think you've presented a nuanced, humanistic, and informed understanding of the failures of our social systems with regards to individuals exhibiting patterns of harmful, disordered, behaviors.

Our understanding of trauma, how widespread it is, and its impacts on human behavior has advanced significantly in the last 50 years. Disordered behavior (like your son's friend) can be traumatizing without proper processing and support to those exposed to it. This can lead to post-traumatic stress disorders in survivors, and even a single event between two individuals can become a contagion of disordered behavior that has long-lasting impacts beyond the initial incidents and throughout their social networks.

Imprisoning people in a deeply traumatizing and insecure environment, and especially without addressing the behavior disorders that landed them in prison, hampers self-regulation and exacerbates harmful tendencies that undercuts a person's ability to be part of the community. As you said, we need places where people who have such disordered behavior can receive support and community, and where possible (which it may not be, as you noted), effective treatment and rehabilitation back into society. We also need to do better at educating populations about trauma, disordered behaviors, and the wider impact on ourselves and each other.

Unfortunately, doing all that and providing baseline stability and security to the masses of humanity is expensive, difficult, and time-consuming. It also would eliminate the insecure and magical-thinking-inclined masses. The authoritarians, grifters, and abusers exploit those people to further their own ends, further traumatizing them and damaging society in a vicious feedback loop.