Short selling the properties to themselves isn't going to make money. They don't need to; they already own the properties outright. Short selling a fraction at a time is just cut their losses without collapsing the market, and the banks are dragging their feet like you wouldn't believe to stretch the process out. California is full of 1/2 million dollar homes that the owners aren't paying on, because the owners know the banks won't foreclose. The banks don't want the land, they want payments.
The idea that the banks want these properties for 'pennies on the dollar' sounds good, but in reality, it's like getting a free foot by sawing your own foot off.
I deal with this every day, and believe me, the banks do not want these properties coming off the market en mass and at a fraction of the cost. The shadow inventory of real estate in California alone is enough to atomize the market of the entire state if it were all to be pushed back into circulation at a lower price. It would drag everything down with it, as well as have secondary effects like putting financially irresponsible people into 'cheap housing' in nicer neighborhoods, who don't really care to mow their lawns, turn down the music, or put their Rottweilers on leashes. You think Uncle Sugar is going to evict any of these fine constituents?
This plan is a Section 8 doomsday scenario. Especially if it's written by the same people that wrote Dodd-Frank. The only ones who would benefit would be voters that support this and actually move into a 30 Year Obama Home, the new bureaucrats that wind up running this monster agency, and whatever investors play ball for government bennies. If any. The 'investors' are probably going to be taxpayers, forced to fund this wealth redistribution behemoth.
Again, I believe TARP went to these banks. Remember, they were called “toxic assets”. That means they’ve already been paid.