There will no doubt be a hundred different places the money went but lots of ordinary folk will have sold property/business's etc to folk who had borrowed the money from the bank. When the mortgage cannot be paid or the business goes belly up the bank has no way to recover the money.
Whilst we are all quick to blame the banks and yes they should have been smarter about who they lent to there are lots of ordinary folk who have had a finger in the current problem.