This is actually sensible, since it shifts the responsibility for verifying the customer's identity onto the merchant, and lets merchants figure out exactly how much trouble they want to go to in order to do this. Some places will demand a photo ID to go along with your credit card transaction. On the other hand, some places like Starbucks don't even make you sign the receipt -- they figure the small number of coffees which get charged to stolen credit cards are well worth the ability to keep the line moving.

In the USA, by law, they are not allowed to stick it to the customer for more than $50.

If they ate the charges, they are afraid that a lot of merchants would deliberately ring up fraudulent purchases for the guaranteed profit.

Those two facts force them to the current system. And the fact that merchants are not allowed to charge customers different rates for different cards gets rid of incentives for merchants to charge customers for the poor security practice that the credit cards have.

Fraudulent and colluding merchants are a huge part of the fraud problem. You mean to suggest that in a perfect world, Amex wouldn't stick it to good-faith merchants. But for the most part, there are only good-faith customers, so they clearly aren't eating charges, and having Amex eat charges raises price for everyone.

If you're lucky and a bunch of fraud cases happen in a month of low turnover you could even lose your merchant account.

Not to mention you're usually out the actual merchandise as well.