Banks with their bad and sometime predatory lending practices are responsible for the artificial real estate price inflation and economic downturn. Those banks need to fail.
Instead of bailing out bad banks, government should step out and create a lending window (good bank), that will lend to small business and homeowners. Private capital can flow into the good bank, so government does not have to provide all the funds. The good bank can buy bad assets at market price and restore the mortages to the homeowners at more reasonable terms. Overemphasizing the importance of financial firms (which create no value, just provide service) will be bad for the economy. The banks could have stemmed the foreclosures long ago. They did not. In many ways they created their own downfall.