I'm hard on Banks. I probably shouldn't be. They are, after all, just like the rest of us. Fallible, emotional, prone to illogic.

But I've always been under the impression that Banks are pinnacle of rationality. They're the cradles of commerce; the protectors of our currency; the guardians of our treasure. They should be completely responsible, rational, economical. And yet the recent financial crisis - started by the housing crisis - has shown them to be anything but.

For example, I'm absolutely flummoxed at why Banks insist on selling foreclosures and short sale so cheaply. Why are they not more focused on maximizing profit from sale? Why do they not care about making the most possible amount of money from every property they move? If they were the bastions of capitalism that they claim to be, would they not be working tirelessly to maximize the value of their REO? Holding out for top price? Pushing their Realtors to demand more? Yet it seems like none of this is happening.

The chart below is pulled from HomeSalesStats.com and it shows you what I mean. I looked only at 4 bed 2 bath homes in Tampa Bay so that my comparison could be as applies-to-apples as possible.

The red line shows median conventional sold prices for Tampa Bay - almost unchanged year of year - at $180,000. 32% below the red line lies the median sold price for Short Sales at $123,000. 11% below short sales lies the median price for Foreclosures - $103,000 in February.

In my opinion, Short Sales are as Bank-controlled as Foreclosures, given that the Bank's approval is required in order to consummate the contract. So what we're seeing in the Bay Area is Banks discounting their properties by between 32% and 43% below the price of ordinary "conventional" sales.

I'm a capitalist, so this discounting makes absolutely no sense to me.

Is the median Short Sale really worth $57,000 less than the median conventional sale? Is the median foreclosure really worth $77,000 less than the median conventional sale? Have people loosing their homes really inflicted $57,000-$77,000 worth of damage on their homes before getting the boot? Or are short sales and foreclosures really in communities that are worth $57,000 - $77,000 less than conventional sales? Of course not!

Why then are foreclosures and short sales priced so much lower than everything else? Who are banks competing against as they work to sell their distressed assets? Themselves, by all appearances! Conventional sellers aren't slashing their prices to keep up - they paid too much, they can't afford to! But Banks are - by as much as 43% in February. And what for? It's like one asset manager within the bank competing against the other; one tax-payer bailed-out bank competing against the other tax-payer bailed-out bank. They're competing against themselves!

Perhaps someone can explain this one to me. When banks slash their prices today, they're hurting their ability to hold their prices at a later date. That's the theory behind the comparable sales valuation method - that Banks created in tandem with the appraisal industry. The process of slashing the price on a house today means they have to sell tomorrow's house at an even deeper discount to keep up with the declining market - which they're creating!

I know how to fix the housing market: Banks, stop cutting your prices without a competitive reason. Sell like you want to make a profit, not like you're holding onto a toxic asset. Wait - that's what they're calling their REO - toxic assets. Well no wonder...