How do you make money on losses

simple, you buy a stock on loan from a brokerage and agree to replace it with the same stock at a later date. You make or lose the difference. That's the simplest, how to make money on bonds collapsing is a bit more complicated, but basically you buy insurance on them, which u can do if you don't own them.

You make money on losses via something called Derivatives, which are essentially a form of insurance. One of the main things that led to the 2008 meltdown was that banks were giving out bad home loans, i.e. loans they knew would likely never be paid back. Then they sold those loans to various investment entities. Then those entities bought Derivatives which ensured that if the loans were not paid back, they would get paid anyway. It worked wonderfully for a few years. But you don't have to be a Nobel laureate economist to see that it's only going to work for a while, and then implode spectacularly.

This is why we need regulation. Back when we had regulations in place, it was illegal for banks to make loans and then sell them. Regulations stipulated that a bank would give a loan to a borrower, and that borrower would pay the loan directly back to that bank. Under those conditions, banks were always very very careful to only give loans to people who could afford to pay the back. Which is obviously as it should be.