OP said "just about every other skill that is needed to be a good software engineer", for which leetcode is useless.
Communication skills, organizational skills, hell, even general knowledge isn't covered by leetcode-like interviews.
Personally, speaking as someone who doesn't like but has to interview potential hires, I have found that there is zero overlap between people doing well in leetcode interviews, and hires doing well in their first year.
> If one could do better hiring at the same cost or less, the whole industry would be interested
I think this is a naive perspective. If there is any takeaway from the recent wave of layoffs, it would be that company wide decisions may be driven by factors that have no relation with actual financial performance. Google could have kept all these engineers and still make an absurd profit.
The notion here is that some company, at some point in time, started putting their applicants through these kind of puzzles, and it became trendy.