> If they knew where stuff was, they wouldn't lose it,
That doesn't follow. For one, knowing where some thing is doesn't imply that said thing is accessible.
Also, how do you know that they "lost" it? Lost suggests an accident. Suppose that they discarded it (which can be a rational thing to do). Do you really think that they'd admit that?
I know for a fact that at a certain point a lot of stuff got stolen at different airports in Italy. There was a big prosecution and publicity. So that's what happens to some of it: it got stolen and they no longer know where it is. If they new where it was, presumably they could tip off the police.
I can't speak for why you can't find insurance, but this site claims that 0.005% of all bags are permanently lost.
Could be US only stats? My bag was lost in Paris, flying with Air France (never again!).
Funny story: my uncle used to work for a company that sold baggage systems. They once lost a body, being sent home to its final resting place, for a few days. Ooops!