I don't know if I'd really call it a situation. Homeless people choose to go to SF because it's one of the best places for them. You won't freeze sleeping on the street, plenty of handouts...
Anyway, whatever the reason, I think it is actually a "situation". Many cities have homeless problems, but SF's is amazingly in your face. Most SF people I know would simply not walk through Tenderloin at any time, even in broad daylight. It's in the middle of the freaking city! That is not normal.
I've only been in the TL for three years or so, but I've spent the majority of that time wondering how regular working-class families with kids can afford to live in the area. I can't imagine how street-level pushers or prostitutes make rent. Maybe they rent places out in Hunters Point or Outer Sunset?
http://www.psychologytoday.com/blog/the-everyman-psychiatris...
I recently lived in the Tenderloin for six months, and my impression was the the majority of the chronically homeless there are crazy.
Union square has a lot more alcoholics and drug users, and 'talented' homeless people like street performers and pick-pockets. They may have some minor issues but they're clearly there by choice.