The question here then is “how much of this has been “socialism for the rich” and how much has been providing liquidity to illiquid but solvent financial institutions”?

It appears that in the US context, it was very much a liquidity/preventing a bank run type of issue – compared to somewhere like Ireland where things are not as pleasent.

Another issue is of course the fact that banks are “implicitly backed” by government – and so can take on more risk then is optimal, and we face the burden.  In that specific case we have a market specific issue that may require intervention – which shows how useful it is to start with the aformentioned stylized facts about borrowing and lending, and then apply them to the modern banking system 😉

I would say that is still an issue – if the bank or government defaults they are saying “we aren’t paying you back man”, often with little in the way of actual assets secured on that debt. So the lenders just lose a bundle.

The governments/banks involved lose trust – which is a huge asset to lose if they want to raise more capital in the future.