Allow me to explain the situation a little.
Let us make a completely hypothetical scenario here:
Case prologue:
Firstly, barring a ruler who is completely respected and liked by everyone everywhere, or divinely powerful by his/her own right.. any ruler needs a powerbase to rely on. This is the same with the hypothetical prince Deadward.
Let us say, that there are two groups in the world whom the 'prince' can base his government on.
There are the 'Nobles', powerful individual characters in loose decentralized groups (who may or may not cooperate with eachother and have enemies, but this is out of the Prince's control) who will be guaranteed to cause problems unless the government cooperates with them. (Bad guys)
Then there are the 'Peasants', who are prone to rebelling when the prince does something they don't like, but are not initially hostile with the government. (Good guys)
The interests of these groups are different and they tend to have problems with eachother, thus combining the two will be difficult. The prince doesn't have a moral reason to side with either, as the groups in this point are just tools for him to get what he wants.
Now, Prince Deadward wants to rule as a dictator, and the peasants disagree vehemently while the Nobles are supportive with it. Thus, he cannot logically cannot base his power on the peasants but will have to seek support of the nobles. The nobles decide to support him, because his rule is directly beneficial for them as well. So, the Prince has kind of a symbiotic relationship with the nobles. You'll scratch my back, I'll scratch yours. However, he cannot just 'command' all the members of the different noble-groups around on a regular basis. So, this means that he doesn't control the power of the nobles most of the time, but he can count on their support when he really needs it, thus the he is weak while having to rely on the nobles, at the same time being extremely strong because he will be hard for the peasants to remove from the power (which is the primary concern for the prince).
Political problems:
Without this problem (or the good guys being a little less completely worthless assistance

), the prince would not have had to rely so intensively on the nobles and permanently include them in the government. The prince (and the PO) perceive the foreign ownership for ~50%+ of the town buildings as a problem for the town. The Principality of Midget-town, which already owns two large buildings in the town makes a claim for the third one. The Governor also wishes to build some rentable houses (which have been paid for now) and knows that the tavern-rooms + the seahorse rooms will be enough to saturate the need for such housing completely. Thus he decides to risk losing everything in the start and going down with a blaze of glory if he loses when refusing the demands of the dwarves, which would compromise his plans. He decides to go both to the bad guys, and the good guys, asking for support.
When the traditional allies of the town (let us call them the Brotherhood of the Brown Tulip) are not willing to back the government (but rather, are flip-flopping to the max) against the demands made by the Midgets, have an alliance with Midgetmountain and generally just refuse to choose sides, the governor is at dire straits.The good guys have some compulsive need to either 1.) Give in on the demands of the midgets 2.) Give in to the demands of the midgets and threaten Prince Deadward (who at this point has done nothing except become the dictator) 3.) Not to support the town, despite the fact that at this point the town is clearly not the agressor or done 'nothing' wrong.
The bad guys say "Don't worry, you can rely on us if the midgets, the brown tulip and the dorfmark all want to come". Thus the Prince decides to gamble and tell the midgets off. The bad guys are appointed to key places and receive government protection. The symbiosis between the Prince and the groups becomes uncancellable.
The governor has a master plan to pacify the town. He employs those who form his current powerbase and have* caused plenty of problems for the previous administrations of the town to work as guards. I would like to point out, that the effect of this has been, that there have been no raids on TB anymore. At first he tries to get the good characters involved with the guard as well (but since the good characters are constantly difficult primadonnas on principle, they cannot really be relied on in the same manner) but ultimately for various reasons (such as the lacking will to make constant concessions to appease the uber-good characters) the good characters throw in the towel and leave the guard. There still are (even at the moment) 'normal people' or 'good people' in the guard, but those aren't the difficult high profile ones. The only 'good' character** in the government is extraordinarily difficult and seeks to undermine the authority of the Prince from the day one, questions critical decisions publically and is just pain in the ass to work with. These all added together don't really encourage the hypothetical governor to really get any more of the 'good characters' in the government. The new guards require some looking after, though.
All the government-sanctioned (with orders from Deadward) violence has been extremely clandestine at least until now. All the attacks against the towns have been committed by individuals or members of the powerbase-groups without the sanction of Deadward. However, he cannot really *punish* the characters for their actions because of the symbiotic relationship he has with the groups, and because distancing himself from the groups would leave him at the mercy of the Holier-than-thou characters (a good chunk of whom have been against the Prince on principle from the start).
*Which seems to be the main problem here. The 'disturbances' have gone 'out of the pandora's box', meaning that those places which used to be safe when TB was the target of the 'brigands' no longer are safe and TB is actually, in the end, unusually safe***.
** The kind of "Holier-than-thou" -character. Some of the Government/Guard members are 'normals', with no real criminal or questionable interests.
***As for the 'killings of a lot of citizens'.. I've heard of one citizen being killed by the guards, for which a valid IG explanation was offered by the killer-guard. There actually is an interest for Deadward to protect the citizens, but if no-citizen makes even an anonymous report.. to anyone.. then there has not meen much attempt to solve this IG by the players of the violated characters.
Let me add, that the 'brigand guards' have ALL been played to the role as far as I am concerned. No-one of those who have been mentioned here has behaved with anything but utmost respect and apparent obedience towards the Governor, regardless of what they do when the governor is not looking. With William Elderberry and Roland Ross being the only characters ever to apply for the residency status, there was apparently no need perceived by the good players or characters to secure any rights for their characters, even though it was made clear that there 'will be no legal protection for outsiders'..
Another point of view
Well, since the PO of Cromwell was not able to play this game for some weeks, the rest of the Group was more or less left alone. So, perhaps they did what they liked to without considering a coherent storyline much? But perhaps there is a broad plan behind it? It is hard to know for sure for outsiders of that Group.
This would actually be closer to the truth. Since I wasn't there to implement my plan (and didn't share it much with the others), they were on their own (which was partially my fault as the player), however they did the attacks on their own, and it is not my business to question the motives or their playing style ooc.
While there 'is' a plan, but the reason why it has not been involved is because the peasants would have a problem with it, thus some kind of calmness and peace would be necessary before the wheels can begin to full turn and take the plan forward. The Seahorse was phase 1.
And the plan won't be revealed, just because of the small chance you wouldn't be able to topple prince Deadward after all.
