During a recent Chicago area locksmith convention sponsored by Clark Security Products, Marshall Merrifield presented a seminar on the “Current U.S. Economy and Security Industry.” The room was filled with locksmiths who came to hear the ‘hows and whys’ of our economic situation and what can be done to at least stay afloat until conditions improve.
Merrifield is the CEO of Clark Security Products. Mr. Merrifield also has an extensive background in the economic field dating from his college days at an Ivy League business school.
He began his talk by mentioning the Glass-Steagle Act which was repealed in 1999. The repeal of this Act served to remove business barriers which had existed between commercial banks, investment banks and insurance banks.
Commercial banks had previously been responsible for arranging and handling home mortgages. With the barriers lifted, and with federal fund rates lowered, commercial banks began a wild scramble to initiate home mortgages and to sell these mortgage papers to willing investment and insurance banks.
Marshall Merrifield reported that the time period between 2002 and 2006 was called the period of ‘easy money’. As more people got housing mortgages, demand for housing increased. This artificially drove up housing values. If there were any payment defaults by home owners, the foreclosed houses could be easily resold at the inflated value to new owners and new mortgages were negotiated.
The result of this selling frenzy was that housing became more and more expensive while at the same time the ranks of people who could afford these high prices was shrinking. Banks began taking excessive risks by giving mortgages to people who really could not afford the mortgage costs they would have to pay. These risky mortgages were then bundled together and sold to investment and insurance banks around the world.
According to Mr. Merrifield, the housing bubble peaked in 2006 and by the summer of 2008, banks found that many of their bundled mortgages were less valuable as an increasing amount of people began to default on their loans. Banks then had less money to lend so home prices declined (asset values compressed) as owners tried selling their homes at any price to a shrinking group of eligible buyers.
Mr. Merrifield used the word ‘toxic’ to describe mortgage, construction and small business loans, all of which became less valuable or even worthless as the housing bubble burst and the economy contracted. At the same time, banks stopped lending and people lost confidence in the economy, causing less demand for goods.
Less demand spilled into many other fields as factory and office workers began to be laid off. The entire financial system (banks and financial markets) neared complete failure in October 2008, triggering a significant slowdown in overall economic activity (recession). According to Mr. Merrifield, “We all felt a little poorer and took two steps back.”
Mr. Merrifield said that all businesses have dodged a “near-death” experience and have become more cautious. He predicts that by mid-to-late 2009, the economy will improve. Every downturn in the economy brings “pain then opportunity,” he said.
There is some good news. He expects that the majority of U.S. industries, including the security industry, will continue to operate relatively normally. Demand for security continues through recessions.
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Everyone left the seminar with a better understanding about how we got where we are and how to face the future with a lot more confidence knowing that there are institutions such as Marshall Merrifield and Clark Security Products to guide us along the way.
CLARK Security Products, featuring Mr. Merrifield, will be hosting this seminar through the summer in Sacramento, Dallas, Cincinnati, Seattle, Washington DC, and Florida.
