There have been a series of announcements lately regarding door and window companies closing. If we look at these situations through the most rigidly capitalist lenses, such closings are probably positive for the industry in the long term. They are representative of the types of activities that we predicted in the process of capitulation that must take place in order for this industry to complete the cycle and head back toward recovery. They allow for a reduction in excess capacity and they make the market a better place for the companies that continue to operate despite the ongoing troubles.

Looking at these company closings from the human or, dare I say it, the social angle, a different story emerges. In my opinion, some of them could have been avoided if actions had been taken more quickly. Taking that point further, I think it is the obligation of the owners of every company that is experiencing severe financial distress in this environment to make an assessment of all the available options. Importantly, this must take place early enough in the process of distress that there is still some possibility of achieving an outcome that is preferable to the closure of a company. We are frequently contacted by strategic buyers and capital providers that are actively seeking companies, even troubled ones, with unique products or extensive customer networks. Such conversations have to be started, though, when these troubled companies have months to operate, not weeks or days.

While I was in touch with a number of the companies that closed this year, I am not familiar enough with their finances that I would want this message to be taken as Monday morning quarterbacking about what “should have” been done at these companies. I am simply raising the point that the current period represents an occurrence so far out in the tail of the curve that few of us have experienced it firsthand. It should be somewhat familiar to us, though, because the last time billions of dollars were destroyed in an overly aggressive and overleveraged series of investments predicated on the underlying assets always going up in value, we called it the dot com bust. We’re now living through the “dot home” bust. As a country, we fell for it again because we walk into our homes every night, whereas all those dot com companies were located far away in Silicon Valley. All of the events of the current market, gloomy though they may be at times, are a necessary part and harbinger of the process of recovery.

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