But why should the tax payers be paying for that either? As much as I have sympathy on a personal level for people who have lost or are facing losing their homes with the housing bubble, many of those people helped to propagate the bubble by taking on loans far exceeding the real values of the properties they bought and their ability to repay over the term of the loan. I know the banks were complicit in this to a great degree but there has to be some personal responsibility for it on the part of borrowers too surely? It's not as if there wasn't a big rental market available (that hadn't been so over inflated - across most of the country at least - one of the reasons the rental market wasn't effected so much is because of the boom in buy-to-let).
This helped to price more cautious (or you could say sensible) people like myself out of the market completely.
The economy benefited from the housing bubble growing, and the governments reaction to it (perhaps understandably since they want to be re-elected) seems to have been to try to delay the inevitable correction (which ammounts to little more than price fixing on a massive scale when you think about it - which is at odds completely with the idea of the free market we're supposedly operating in).
I'm not sure what's worse - giving the money directly to the banks or giving it to people who've taken 15+ times their income loans on houses and spent the last decade spanking their monkey over Sarah Beeny and her cohorts and driving everyone nuts blabbering on about how much their houses are worth (while forgetting that it's only really worth that much if you don't need to live in it because otherwise it's only relative to all the other houses that are stupidly over priced too ofcourse - and if it's a buy to let property then yeah its paying your mortgage but for how long and how much risk is associated with that over the long term?).
If their mortgages were paid off by the tax payers in the process it'd likely leave the housing market over-inflated (or worse still spark another bubble as afterall if the tax payer pays off all those mortgages then those not so cautious people are then sitting on all that capital/colateral for more loans.....and many of them don't have a good track record where sensible long term borrowing is concerned do they?).
If it was that sort of conspiracy, wouldn't it have been a better game plan for them to let the other banks fail then buy them up/foreclose. That seems to be what one school of thought suggests happened in the great depression (their theory being similar to yours that it was knowingly started by a small group in order to consolodate the market into fewer hands - and there does seem to be some evidence to suggest that in that case when you look at what happened to so many of the smaller banks - but whether it's true or not is anyones guess).
There might be a far simpler explanation - that Tony Blair is an idiot, and that keen to distance himself from 'old-labour' he signed away anything the banks asked of him for that reason, and to encourage the perception that the UK was the place to do business (in some respects that worked - for a while anyway).
You're probably right there, but I think there have probably been quite a few winners and not the shadowy conspiracy you think it is myself . There are a lot of very rich people who've done very well out of the boom period who will now sit back and wait for the bust before the reinvestment starts again and everything can be bought up at rock bottom prices. They won't be worrying so much about their money losing value as they'll be smart enough to have it squirreled away somewhere safer or invested in something more solid, and they won't be the ones who the banks will be paying zero interest (or even charging you to keep your money with them which some of them are talking about now for regular man-in-the-street savers).
Have to admit, that's the way I tend to look at it too. Either we live in a free market capitalist system or we don't, and you can't have your cake and eat it imho.
The reality though is that there isn't really a free market and never really has been imho (at least not in the way that supposedly influential philosophers like ayn rand forecasted). Just the illusion of one.
I can see the reason people don't want the banks to fail though as they're worried it could shake up the economy to such a degree that everyone suffers, and people are generally prepared to put up with anything to cling to the illusion of security.
Plus if you are right and this is some ruse perpetrated by a small group of insiders, then letting the banks fail could be playing into their hands in an even bigger way?

I might not agree with everything you say here (and that's only my opinion and you could be right and I could be completely wrong - I'm not an expert), but I know the feeling. I got exactly the same reaction when I was telling people buying buy to let properties that I though the sh*t was going to hit the fan eventually myself, and I've been doing that for a few years now too.
Particularly over the housing bubble. What was going to happen there was so obvious anyone should have seen it coming but even when I talked to people who supposedly knew about that market "what happens when this happens which leads to this, then this happens, then this..." the usual reaction was that the banks and government wouldn't let such things happen (forgetting that banks are notoriously greedy, and governments notoriously incompetent).
Just my take on things and I could be completely wrong, but I'm not sure it is a shadowy conspiracy in this case (not I reject the idea of such things out of hand). I think it's had more to do with greed, incompetence, and otherwise intelligent people sticking their heads in the sand because the illusion was so alluring while it lasted.