If the risks were genuinely understood, why are central banks in a panic?

I think they are panicking because the realisation is dawning. It reminds me of the realisation - post Piper Alpha - of the Lloyds' reinsurance spiral.

How corrupt and/or stupid do the markets as a whole have to be to keep repeating this cycle?

It's not really a matter of markets being corrupt or stupid so much as them being markets. They do what they do. Garbage in gives rise to garbage out.

Variations on this theme will continue and for as long as we have a deficit-based system we will see cycles of Schumpeterian creative financial destruction.

What exactly is the social benefit of any of this nonsense?
 

That depends upon how you define "Society" and whether or not you believe in the "trickle down" of the wealth siphoned off by the intermediaries running the system.

"Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky