Agreed, surely there must be a better way than leaving people with serious mental illnesses on the street.
It's a tough issue. I was reading about the history of the institutions, and the critics. Currently the general standard for involuntary institution is being a danger to others or oneself, which is a very high standard. Per some of the most influential critics finding a lower standard than that... one of determining someone is mentally ill to the level they should be involuntarily instituted is very difficult, and also a scary slippery slope of civil rights.
Very recently, I happened on a radio program discussing the issue of homelessness. Although they only marginally touched upon the issue of mental health, a current solution (toward homelessness) being implemented is housing to which it was commented something along the thought that 'not all stay but there are those who have been helped..." with an implied acknowledgment that those that did stay and therefore were not help were those more mentally unstable. Anyway, I think this might at least be a good starting point, that is, providing 'voluntary' accommodation 'off the street.' This is at the least a mercy toward the general public as much as it is a grace toward the homeless.