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The Bubble and the Bear: How Nortel Burst the Canadian Dream

by Douglas Hunter

In the wake of a tragic event – a school shooting or a car accident involving a mobile phone, say – there is a terrific swell of curiosity among members of the media and the public. Inquiries are conducted. Questions are asked. In the end, they are of minimal comfort to the victims.

The tragedy of Nortel Networks is not that much different. How could this Brampton, Ontario, company, which seemed unstoppably profitable as it helped make the world a more connected place, wind up as much a metaphor for disaster as the Titanic? It is the question many of the investors who lost millions on Nortel stock are asking.

It is the question that Douglas Hunter tries to answer in The Bubble and the Bear with some success. The book begins with the origins of the company before focusing on the performance of the stock, with emphasis post-1999, when Nortel’s share price rocketed to $124 before falling just as precipitously to where it sits at the time of writing, at under a dollar.

Hunter offers many explanations for the drop. Most importantly, he explains in great detail how Nortel was recognizing revenue using various accounting techniques that, while perfectly legal, gave the impression that the company was making more money than it actually was. Yet Nortel itself isn’t entirely to blame. Hunter takes well-deserved shots at the game played by financial analysts who (for various reasons) chose to believe and propagate the hype instead of telling investors what was really going on.

Yet Hunter fails to put the events surrounding the rise and fall of Nortel in the context of the bubble economy, the after effects of which remain with us. As the Nortel story is not yet over, it may also be a little too soon for such an analysis. There are no interviews with Nortel execs or their customers or competitors, and it is unlikely that any of those people will be willing to talk for some time.