the law of unintended consequences - part 1

I can't remember what talk show I heard the phrase "the law of unintended consequences" but whoever coined the term is one of the smartest out there. The basic meaning is that anything you do will have consequences you didn't intend and probably didn't anticipate. This is the "collateral damage" of legislation.
Today, my gripe is welfare and bailouts. I talked already about companies and our prolonging their failure, so now let's look at individuals. We have seen the unintended consequences of encouraging banks to lower their standards for mortgages; foreclosures of historic proportions and major institutions in danger of collapse. What happens if we rescue the individuals who got mortgages they would never have any chance of paying off? If we take those mortgages off the banks' hands and have a government bank oversee negotiating down the mortgage (the best possible way of fixing it by doing something that I can think of) responsible homeowners that can pay their bills because they made sure they weren't getting in over their heads will be pissed and will demand that they get a piece of the pie (possibly by artificially making themselves "unable to pay"). Secondly banks will walk away having dodged a bullet, but will probably have learned nothing. Next, the government will have flushed taxpayer money down the drain and will feel compelled to create laws to hamstring lending in the future to "keep this from happening again" and those who haven't bought a house yet because they were responsible will have a much tougher time of it.
Finally, the irresponsible buyers who bought too much house with nothing or near-nothing down will need to be judged by an institution that can only work in generalities due to how far it is removed from
those individuals. This will harm some that should be helped, help some who were scamming the system from the beginning, and eat up most of the money in bureaucracy.
What should the government do? how about start up a special type of non-profit organization with strict rules as to what percentage of the money it gets must go to the people being helped and a strong tax benefit for donating to these new non-profits. If we label the bill something like "non-profits for financial rescue" then the majority being started will have the goal of bailing out individuals who have fallen on hard times financially, but being close to those individuals will allow them to spot fraud easier.

I'm sure there's consequences of this that I haven't noticed, so post any you see