In the grand scheme of things, this (GME, AMC, etc.) is a really small pool of money at play.

For reference, the Norway Oil Fund [1] holds almost 1% of the world's stock which amounts to somewhere in the neighbourhood of 1 trillion dollars. So the overall size of the investable asset universe for pension funds is really large (real estate, private equity, hedge funds, venture funds, stocks, credit/bonds, etc.) and pretty much all well run pension funds have a diversification mandate so there's no concentration in one asset class.

[1] https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...

There's a lot of retirement money tied up in stocks right now that should be in less risky investments. People should distrust stocks if they're going to need the money the near/mid term, but monetary policy in recent years has driven people to stocks in search of yields that have dried up in bonds etc. This has a feedback effect where now the government is hyper sensitive to stock market downturns, for fear that millions will lose their retirement savings.

There are people that "trust" stocks? To me it's always been a somewhat stupid casino game for the rich to rig.

Pick your funds wisely. No one should have their next meal dependent on a weird short position. Read the risk prospectus for your funds and take it seriously.

There is little deception. Funds that take crazy risks will say so in their prospectus. There's no chance your S&P500 index fund is taking a huge Bed Bath And Beyond short position when no one is watching.

Can you imagine a better avenue for recalibrating people who treat investments as less risky than they actually are?

I can't.

People shouldn't be trusting stocks simply because they are stocks.

Yes, it was this event and not say the 2008 crisis.