Marketing and the Global Financial Crisis (GFC) of 2008 : A Theoretical Analysis

It is widely recognized that the Global Financial Crisis (GFC) of 2008 began when sub prime borrowers defaulted on loans made by sellers. Complex dependencies among various players in the mortgage industry further exacerbated this problem. For example, derivative products like mortgage backed securities were created from loan tranches of varying quality leading to erroneous ratings by credit agencies and inefficient signaling outcomes. This study looks at the ‘marketing' side of the GFC. Given marketing's emphasis on the exchange paradigm, the basic premise of this paper is that buyer-seller interactions in the mortgage market can be gainfully studied using a ‘marketing' lens. To achieve this objective, this paper develops a two-sided model of agency relationships in the mortgage industry and identifies fault lines that contributed to the GFC meltdown. The paper discusses several approaches for designing efficient markets and delineates implications for academics and practitioners