Great essay.
The mechanism of grant funding is well explained and the criticisms raised are effective.
Your "no proposal" model is also very interesting and could really be useful to support those young scientists with innovative ideas.
Your story reminds me of the following painful experience. I had the opportunity to write a grant in which a very important Nobel laureate (one of the most eminent living scientists) made himself available to supervise me in the project, hosting me in his department for a collaboration. The project was indeed visionary but well supported by peer-reviewed results. Unfortunately, due to a certain obtuseness of the bureaucracy that you well-described in your essay, and largely due to censures received by arXiv for my research on which the grant was based, my proposal was rejected. No words!
If you want more information on the negative effects that arXiv can have on the progress of scientific research and on its absolutely anti-scientific policies, please read (and rate) my essay "The Name of the arXiv: when too much zeal is an obstacle to science"