A Marketing Systems View of the US Housing Crisis

Abstract

The US housing market involves a network of specialized actors servicing the buying and selling of homes. In the years leading to the housing bubble, this network underwent a significant evolution in response to environmental changes. Prior to the bubble, traditional actors such as local banks, savings and loans, Fannie Mae, and Freddie Mac predominated. During the bubble, new actors such as mortgage brokers, investment banks, and institutional investors came to displace the traditional ones. Attention is drawn to the activities of new players in the housing market, to the changed roles of traditional players, and to inactivity among regulators. This article presents an overview of system dynamics in terms of the market actors involved and their interrelationships, which culminated in the bursting of the housing bubble. Although many features of this case are unique, some general lessons for marketing systems can be drawn. Marketing systems can come to be dominated by actors formerly in supporting roles; new system structures can fail to serve customers well; and unfounded assumptions can cloud business and policy decisions.

Investigating Chrematistics in Marketing Systems

“…Market systems are open scapes of provisioning (Fisk 1981), within which incumbent stakeholders are more interested in stable, just structures, but are often imperiled by ''flyby-night'' players flooding the market (Redmond 2013). In such cases, short-term priorities (e.g.…”

“…In any case, in conducting the analysis the researcher must go beyond the blame game (Redmond 2013;Stiglitz 2010). The focus must be on how individual players reacted to changes happening at the macro level.…”

“…The focus must be on how individual players reacted to changes happening at the macro level. It seems that in the case of the U.S. housing crisis, local decisions by many parties (customer, banks, mortgage brokers, investment institutions, government agencies, politicians, rating agencies) worked in accord with anticipated/occurring changes that had a profound impact on the system's design (Redmond 2013). Powerful actors-for instance, Fannie Mae's chief executive and other politicians-had a role to play.…”

“…The researcher will need to study whether there exists increasing effort to influence society/culture with a view to artificially expanding the demand for particular offerings when it is known that the expansion can be harmful for society at large in the long term. Back to the case of the U.S. housing market crisis: the mortgage market dominated the housing market, whereas subprime mortgages became a tool of artificial demand stimulation (Redmond 2013). Putting this metaphorically, ''The tail did wag the dog'' (Redmond 2013, p. 125).…”

“…At the transactional level, the market was doing what it was supposed to do, and nothing seemed to be wrong, as everyone was (seemingly) making profit. Mortgage agents pushed mortgage contracts to broader markets; the banks re-packaged these mortgages into securities; the financial institutions sold these securities to investors; and the rating agencies approved these securities, while the government agencies pursued political ambitions exploiting the national perceptions of the American dream (Morgenson and Rosner 2011;Redmond 2013;Stiglitz 2010). However, various experts and institutions issued multiple clear warnings.…”