Ethical Dilemmas in Google Glass

June 27, 2012- Google introduced Glass

Google Glass- comuter that users wear like a pair of eyeglasses
Sergey Brin- parachuted out of a zeppelin wearing glass and attended conferences
2004- Founders provided “An Owner’s Manual
- Google is not a conventional company
- goal is to develop services that improve the lives of as many as possible

-What it would be like to be around someone else wearing the product

- big concerns about the privacy of non-users

“Don’t be evil”- Google’s willlingness to do the right thing even wen doing so requires the firm to
sacrifice in the short run.

Chapter 2- The Financial Market Environment

Accounting- understand how business income is taxed and the difference between average and
marginal tax rates.
Information Systems- how information flows between the firm and the financial markets
Management- healthy financial institutions are an integral part of a healthy economy
Marketing- Firms to communicate about their operating results, regulations constrain the types
of communication that occur
Operations- external financing an essential aspect of ongoing operation

Case: A Crisis in Housing Finance ( Under Water in the Desert)

Phoenix, Arizona- it’s sunny dry weather attracted retirees from coldor and wetter climates in
US/ new jobs
-The boom in Phoenix was reflected in area’s house prices (September 1992 ^166 consecutive
months)
June 2006- house prices started to fall
August 2011- bottom (56% in 5 years)
Financial markkets helped spread the bad news around the world.
-negative equity
-homeowners defaulted on their mortgages
Mortgages default were rising rapidly
- largest banks appeared to be near collapsed on 2008/ US government bail out
-contributing to th Great Depression

Firms can obtain funds from external sources in three ways.

1. ) Financial Institution- accepts savings and transfers them to those that need funds.
2. ) Financial Markets- organized forums in which the suppliers and demanders of various types
of funds can make transactions.
3. ) Private placement

Financial Institutions- intermediaries/ channeling the savings of individuals, businesses and

governments into loans or investment.
- directly or indirectly pay savers interest on deposited funds/ povides services for a fee.

Key customers of Financial Institutions

- individuals, businesses, and governments.
Individuals- not only supply funds to financial institutions but also demand funds from them in
the form of loans.
Individuals as a group- net suppliers
Net suppliers = save > borrow
Business firms- checking accounts with various commercial banks
Net demanders- borrow > save
Governments- deposits of temporarily idle funds, certain tax payments, and Social Security
payments- does not borrow funds directly/ by selling their debt securities, they indirectly borrow.
Borrow > save

Major Financial Institutions

Commercial banks, savings and loans, credit unions, savings banks, insurance companies, mutual
funds, and pension funds

Commercial Banks- most important, invest and loans

Traditional business model- taking in and paying interest on deposits and investing or lending those
funds back out at higher interest rates.
Deposit insurance

Investment banks- assist companies in raising capital

- advise firms on major transactions such as mergers or financial restructurings
-engage in trading and market making activities

Glass-Steagall Act- separation betwee commercial banks and investment banks (institution
engaged in taking in deposits could not also engage in the somewhat riskier activities)

Shadow banking system- group of institutions that engage in lending activities

- do not accept deposits and different regulations from traditional banks

Financial Markets- suppliers of funds and demander of funds can transacts business directly.
1. ) money market- short term debt instruments
2. ) capital market- long term securities
To raise money
Private placement- sale of a new security directly to an investor or group of investor
Public Offering- sale of either bonds or stocks to the general public

Primary Market- Financial market in which securities are initially issued, only market in which the
issuer is directly involves in the transaction
Secondary Market- preownes securities are traded

Relationship between Institutions and Markets

Money Market- created by a financial relationships between supplier and demanders of
short-term funds ( 1 year or less)
- made in marketable securities- short-term debt instruments/ least risky investments

Eurocurrency Market- international equivalent of the domestic money market/ nearly all are time
deposits

Capital Market- suppliers and demanders of long term funds to make transactions.
- backbone of the capital market is formed by the broker and dealer markets

Bonds- long-term debt instruments

Coporate bonds- typically pay interest semianually at coupon interest rate
- initial maturity of from 10-30 years and a par or face value of $1000 that must be repaid at
maturity

Common stock- units of ownership, or equity, in a corporation/ dividennds

Preferred stocks- special form of ownership that has features of both a bond and common stock/
dividend must be paid prior to payment of common stockholders

Broker Market- two sides are brought together and the trade takes place at that point
- consistes o securities exchange
Securities exchange- organizations that provide a marketplace in which firms can raise funds
through sale and resale of securities
(NYSE)
Dealer Market-- buyer and seller are never brought together directly
- market makers execute the buy/ sell orders
Market makers- securities dealers who make markets by offering buy or sell certain securities at
stated price
bid price- highest price offere to purchase a security
Ask price- lowest price at which a security is offered for sale.
- made up of Nasdaq market (all-electronic trading platform) and over-the-counter (OTC) market
(smaller, unlisted securities are traded)
- large number of market makers who are linked together via a mass-telecommunications network
- primary market is also a dealer market

International Capital Markets

Eurobond market- bonds denominated in dollars and sell them to investors located outside the
united states

Foreign bond- bond issued by a foreign corporation or government that is denominated in the
investor’s home currency and sold in home market
International Equity Market- allows corporation to sell blocks of shares to investors in a number
of different countries simutaneously.
Role of Capital Market
Firm’s perspective- to be liquid market where firms can interact with investors to obtain valuable
external financing resources.
Investor’s perspective- to be an efficient market
Efficient market- establishes correct prices

Price of an individual security- determined by the interaction between buyers and sellers.

New information -unperdictable

Behavioral finance- finance and psychology- predictable pattersn from variation

Financial Crisis
Summer and fall of 2008- financial systems around the world appeared to be on the verge of
collapse

Local banks took deposits and made loans to local borrowers

1970’s - securitizatin has changed the way that mortgage finance works.
Securitization- pooling mortagesor other types of loans and then selling claims or securities against
that pool in a secondary market.
mortgage-backed securities- represent claims on the cash flows generated by a pool of mortgages.
Primary risk associated with mortgage-backed securities

Falling home prices and deliquent mortgages

- before 2008 financial crisis- investos viwed mortgage-backed securities as relatively safe
investments
- because real estate investments appeared to be relatively safe, lenders began relaxing their
standards for borrowers- Subprime mortgages (mortgage loans made to borrowers with lower
incomes and poorer credit history)
When homeowners had difficulty making their mortgage payments, deliquency rates and
foreclosures began to climb. Borrowers simply walked away from their homes and let lenders
repossess them

Crisis in Confidence in Banks

Delinquency rates rising = the value of mortgage-backed securities began to fall
-affected financial institutionis that had invested heavily in real estate assets

Spillover Effects and the Great Recession

- banks began to tighten their lending standards and reduced the quantity of loans they made
- corporations had relied on the money market as a source of short-term funding
- businesses began to hoard cash and cut back on expenditures, and academic activity contracted.
- gdp declined, economy shed more than 8 million jobs in 2008- 2009- unemployment reached 10%
Early 1930’s - series of banking panics that caused almost one-third of the nation’s bank to fail.
- troubles within the banking sector and other factors contributed to the worst
economic contraction in US history
- industrial production fell by more than 50%
- unemployment rate peaked at 25%
-stock prices dropped roughly 86%
Glass-Steagall Act- calm the public’s fears by establishing:
Federal Deposit Insurance Corporation (FDIC)- provided deposit insurance for deposits at banks
and monitors banks to ensure their safety and soundness.
-also prohibited institutions that took deposits from engaging in activities such as securities
underwriting and trading (separating commercial banks from investments banks)

Gramm-Leach-Bliley Act- allows commercial banks,, investment banks, and insurance companies
to consolidate for business in a wider range of activities

Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010.
Creation of several new agencies, including the:
Financial Stability Oversight Council, the Office of Financial Research, and the Bureau of
Consumer Financial Protection

Regulations Governing Financial Markets

Securities Exchange Act of 1934- secondary trading of securities such as stocks and bonds
- created the Securities and Exchange commission
Securities and Exchange Commission (SEC)- primary agency responsible for enforcing federal
securities laws
-requires ongoing disclosure by companies whose securities trade in secondar markets
10-Q filing every quarter & 10-K filing anually (detailed information about the financial
performance of the firms during the relevant period. These forms are available through SEc’s
website EDGAR (Electronic Data Gathering, Analysis and Retrieval)

The biggest benefits of government regulation are the resullting trust and confidence in the
financial institutions and markets. Trusts and confidence are necessary to ensure society’s
participation in the financial market environment.

Business Taxes
- income of sole proprietorships and partnerships is taxed as the income of the individual owners
- corporate incomes are subject to corporate taxes

Two types of income:

A. ORDINARY INCOME- income earned through the sale of goods or services.
 Marginal Tax Rate- the rate at which the next dollarof income is taxed
It’s the marginal tax rate that really matters
Average Tax Rates- dividing its taxes by its taxable income

Any interest received by the corporation- included as ordinary income.

Dividends are treated differently- dividends that the firm receives on common and preferred stock
held in other corporation are subject to 70% exclusion
-the different treatment moderates the effect of double taxation
Double taxation- occurs when after-tax corporate earning are distributed as cash dividends to
stockholders, who then musut pay personal taxes on the dividend amount

Tax deductable expenses

- in calculating taxes, corporations are allowed to deduct operating expenses, as well as interest
expense

B. CAPITAL GAINS- if a firms sells a capital asset for more than it paid for the asset, the
difference between the sale price and purchase price is called a capital gain.
- for corporations, capital gains are added to ordinary corporate income an taxed at regular
corporate rates.