There never was a guarantee a bailout would work. (That is, a _real_ bailout free of political-connection corruption and misuse of the funds given.) Not for banks, not for the failed-for-more-than-thirty-years-with-no-facing-of-reality Detroit Three, not for homeowners who borrowed more than they could afford because they were greedy, not in any case. Banks won't lend if they're scared of poor risks; people won't borrow or spend (what kind of people would demand they borrow?) if they are given money, necessarily.

As to what happened, it was greed, greed, greed. People thought they had instant riches without effort in the stock bubble, then the housing bubble. The rest of it involving the financial operators and the other players was just more greed.