The underlying solvency problem has not only not gone away, but will gradually get worse as people actually begin to default.

Yes, but the bonds effectively indemnify the banks against the defaults.

So the UK government holds onto the toxic paper, while the banks get to keep the profits - until the paper stops being profitable, at which point it's dumped on the Treasury. with anguished cries of 'Oh what a terrible shame' and 'Who could have expected...?'

This is much nastier than NR, and - unsurprisingly - it's also more or less the same bail out as the Fed engineered for Wall St.