To my mind, the more likely explanation is that they would simply get too many false positives if they didn't use the algorithm stuff to filter potential hires. You lose a lot of potentially good hires that way, but the pool you're left with are all of a certain intelligence level. Whereas, if you don't use the algorithm stuff to filter, it's really hard to figure out who is even intelligent enough to do the job.

> my group of engineer friends came up with on why all the FANG companies pursue those heavy memorization algorithmic interviews

I think the most likely explanation is that "elite" of CS grads usually do competitions like ACM ICPC and olympiads, which are full of problems like those watered-down interview questions. As there is no real authority on what makes a developer good, but there was a measurable outcome of those programming competitions, leading to high status and pride displayed by winners/participants, it was simply taken from there and dumbed down to fit into interviews. Some top colleges even have special prep courses for those competitions and comparing to them FANG interviews are super trivial.