Interesting thing about where the whole thing came from is it seems to have 'evolved' somewhat. The first real emergence of the baggy pants in rap culture as I can recall was MC Hammer in the video for 'You Can't Touch This', I would guess mid-80's from memory. Now those pants were SUPER baggy. But he didn't wear them around his knees, and I would say looked somewhat stylish (not my style, but stylish nonetheless). Maybe the affordable way to get super baggy pants was to wear pants 10 sizes too big, which inevitably lead to the wearing them round your knees phenomenon (just guessing).

The issue raised by the example of the 13 year old boy, ad being afraid to confront him is really a separate one. It's about (off the top of my head - there may be other issues too):
1. Respect for others ('elders' or not is 100% irrelevant in my book)
2. Prevalence of gun culture in the society and availability of guns.
3. Portrayal of belligerence and violence (rather than simply rebelliousness) in popular culture.
4. Concentration of the above issues in urban rather than rural areas

It's a difficult one to handle, to be sure - due more than anything else to the gun culture factor. Here in Australia, the above factors do exist too, but seem to be significantly less (except the gun culture factor, which really only exists in the underworld here, rather than mainstream). As a result, if one felt strongly enough about an offensive buttock, one could say something to the kid without fear of being shot (mind you, knives are rapidly growing in our youth culture here, though as I can see it, they are mainly using them on each other).

My reaction when I see someone making themself look like an idiot by trying to conform is generally internal - a mental roll of the eyes and perhaps a little laugh. I don't feel at all offended and have no need to complain or ask them to change their behaviour.