Bank analysts forecasted that the federal government may encounter a budget deficit of $40 billion for 2009 (Annis, 2009).
Among the first institutions to fall is Nortel Networks, a century-old telecommunications company. However, Nortel’s problems are not caused by the crisis alone; since 2001 the firm had become prone to market weakness when it bought two companies for $ 15 billion just before the Internet crash in the US market. The company’s recovery after that was cut short, this time by an accounting scandal for which then CEO Frank Dunn was fired and seven corporate officers charged with massive accounting fraud (Duffy & Greene, 2009; Brieger, 2007). As a result of the collapse of Nortel, it filed for bankruptcy protection from creditors in January 2009; unfortunately, it also stopped paying severance, transition allowances, deferred wages and pensions to its former employees and retirees. This has brought untold suffering to many of these who have no other source of income.
Despite its problems, I believe the Canadian government did not bail out Nortel because of the financial recklessness of the company officials in embarking on a massive acquisition program in the high-tech boom for which it incurred a high amount of debt. But more than this, it is likely due to the accounting fraud that company officials committed in 2004, to the disadvantage of corporate operations. A timeline diagram shows the facts about Nortel:
Many causes have contributed to the US financial crisis, all traceable to the failure of regulatory procedures applied to banks and financial institutions. Firstly, the Basel II Accord provisions ensuring the financial safety of banks were circumvented by cosmetic financial reporting (Jones, 2000), although regulators would have been able to detect these violations had they been more vigilant.