I'll await SF1900's response, but mental institutions were a good thing. Most of the homeless that are out on the streets today have mental problems and should've been institutionalized.
Many inpatients hospitals are closing due to lack of funding. As such, many people with severe psychiatric disorders, such as schizophrenia (and other psychotic disorders), are being released. Unfortunately, many of them have nowhere to go because their families have pretty much abandoned them. Homelessness increases the chances of trauma and substance use, thus the vicious cycle continues. These people often have a history of trauma.
There are many factors that go into deciding whether or not someone needs long-term care. It's usually if they are consistent danger to themselves or someone else. The ones that are involuntary admitted for harm to themselves or someone else, will be admitted for 72 hours. If they are deemed to no longer be a danger to themselves or others, they are often released and referred to outpatient treatment/programs, which is usually one day per week. The issue is that many people with severe psychotic disorders will not follow up with their appointments--I mean, can we really expect someone in a psychotic state to show up for their appointment? Ummm, probably not. These people need more intensive care, but will not receive it for a variety of reasons. Community mental health centers are needed in order to address the needs of a community. However, community mental health centers are often not equipped to handle the needs of extremely psychotic people (that is what inpatient hospitals or partial day programs are for). Often, the treatment of severely psychotic people involves the collaboration of multiple different systems (psychiatrist, psychologist, social worker, career counselor). Unfortunately, finding such an extensive program is tough. So, in one way or another, they wind up "falling through the cracks" of the system.
As for the 16 year old in this video, he does not appear mentally ill. The media throws around the word "mental illness" too often. If you've ever been around people who are truly mentally ill, you would know that this kid does not fit the description. And for what its worth, the research is quite clear that mentally ill people are more likely to have crimes committed against them, than to commit a crime, i.e., mentally ill people are more apt to have violence used against them, than to be violent themselves. So, to call this kid "mentally ill" is sort of a cop out from the media.