Each day raises fresh questions about why Wall Street's best and brightest failed to anticipate one of history's nastiest financial crises and the worst economic downturn in decades, even though ample warning signs were there for all to see.
Even Britain's Queen Elizabeth II was troubled enough to ask why "no one spotted the credit crunch" or saw "a world financial crisis looming," according to a report from Agence France Presse. (Clearly, she and her advisors had not read Financial Armageddon or else she might have rephrased her questions.)
Still, I would be remiss if I failed to point out that some of those who don't have knowledge of finance and economic history did sense that something was seriously wrong.
BRILLION, Wis. -- Daniel Ariens's biggest concern right now isn't the financial crisis. It's getting his hands on snowblower engines.
The chief executive of Ariens Co., a maker of mowers and snowblowers, got a curt email last month from the company that for decades supplied engines for his line of snow machines, telling him they're halting production in 60 days -- essentially cutting off motors at the peak of his season. A host of problems hobbled that supplier, including the loss of a huge customer and problems obtaining crucial parts, such as starters, from the engine maker's own supply base.
"I'm quite sure we have other suppliers that won't make it through this cycle," says the 50-year-old Mr. Ariens.
This highlights a grim reality now dawning across the U.S. economy. Deep problems existed long before the meltdown on Wall Street and won't be fixed by the government's injection of taxpayer money into the nation's banks. Even if the credit crunch eases, as now appears to be happening, companies such as Ariens are bracing for a painful recession and taking steps to survive it.
Car sales and industrial production have plunged, consumer confidence has wilted, and companies have accelerated layoffs. Manufacturing, particularly autos and machinery, is leading the way down. Exports can't be expected to cushion the impact because the slowdown is global.
Ariens, which operates two large factories in this tiny Wisconsin town, saw signs of softening more than a year ago. The company shifted into austerity mode and is now hunkering down. Ariens is reviewing every supplier, both for price and financial viability. It is examining each step of the production process for unnecessary movement, in an effort to boost efficiency and reduce costs. It is designing products with nervous and stingier consumers in mind.
"There's no way we could have predicted a credit crunch," says Mr. Ariens. "We're not that smart, but we could see gathering stress in the marketplace."
The 75-year-old company -- founded in the Depression as a maker of tillers for farms by Mr. Ariens's great-grandfather -- has repeated this drill often, having been through several recessions. The measures taken are different each time around, since operations and markets evolve. But the essence is the same: finding ways to tweak production and squeeze efficiency from workers, suppliers and delivery networks.
Other manufacturers, likewise seasoned in surviving cycles, are embarking on the same lean path. "Recessions push companies to make the hard decisions," says Michael J. Swanson, senior economist at Wells Fargo. "Maybe they have assets in the wrong place, doing the wrong things. But when cash flow stops, it's do or die -- and they usually do what's necessary to survive and are better for it."
He recently visited a trailer factory, for instance, that revamped its assembly lines in the wake of the last recession to be far more flexible and has recently used that capability -- switching deftly from producing trailers used by home builders, where the market collapsed, to making trailers designed for still-strong agricultural users.
Cutting Inventories
Joseph Carson, U.S.
