The existing sub-subreddits organically evolved from disputes between more primary subreddits about the type of content users wanted to see; e.g. r/atheism decides they don't want low-quality meme posts, so r/atheismmemes is created. If reddit were to simply remove the mods from thousands of subreddits, it could easily sour those communities.
Yeah but they need to be BAD. "Mediocre enough that users don't want to migrate elsewhere" (like /r/games) seems to be enough to keep it running and gaining subs just fine
I've never visited r/games and now I'm glad I never have.
The head mod did not agree, and after a couple of years of the sub being basically unmoderated and 90% US politics, and generating user complaints as a result, threw a tantrum and said anything goes, and posted a load of anime porn.
Since the subreddit named world politics was now full of anime porn, and a little inspired by the subreddit r/marijuanaenthusiasts (the subreddit about Botany, since r/trees was taken by the weed people), a bunch of users decided to create a subreddit called r/anime_titties for discussing non-US politics.
And yes, I'm familiar with /r/trees and /r/marijuanaenthusiasts, a couple of favourite examples.
There is some competition between subreddits for attention, and a bad mod team can cause a subreddit to lose that competition (including to subreddits on different subjects), so there is some amount of successful community building that must have happened.
Certainly Reddit's setup does incentivize name squatting, but there's been plenty of cases where the obvious name is run by a team so ineffective that it gets outcompeted (r/marijuana vs r/trees, r/lgbt vs r/ainbow, r/moddedmc vs r/feedthebeast are some examples). And plenty of communities get by with non-obvious names, like r/DestinyTheGame, r/Pathfinder_RPG, so it's not purely a name race.