Economics in the News – March 13-19, 2023
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o Swiss bank UBS is buying its troubled rival Credit Suisse for an estimated $3.25 billion to ease the global banking system. UBS was pushed by Swiss authorities to take over Credit Suisse after the plan for Credit Suisse to borrow up to $54 billion failed to reassure investors and the bank’s customers. Authorities worried about the potential fallout if Credit Suisse failed, as it is among the 30 financial institutions known as globally systemically important banks.
The deal follows the collapse of Silicon Valley Bank and Signature Bank, the second and third largest banking collapses in United States history, respectively. Many of Credit Suisse’s problems are unique and unrelated to the banking collapses of SVB and Signature Bank. Credit Suisse leaders reported on Tuesday that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. The combination of Switzerland’s two largest and best-known banks leaves it on the cusp of having one major titan in global banking. [The Wall Street Journal]
o In the days of high inflation, more senior citizens are taking advantage of senior discounts commonly offered at restaurants and retailers. AARP says that more of its 38 million members are taking advantage of benefits while membership enrollment has increased. Seniors are showing more interest in taking advantage of the gas discount offered with AARP, as well as hotels and events.
The stakes are high for seniors who are out of the workforce and face increasing costs of long-term care while seeing their retirement funds shrink thanks to a pull back in the financial markets. Social Security benefits also lag behind despite an 8.7 percent increase in checks by the Social Security Administration. [The Washington Post]
o Vehicle production has not yet returned to normal more than three years since pandemic-induced shutdowns. The average new-vehicle price is $48,763, as recently as February, according to Kelley Blue Book. Before the pandemic, the average new vehicle retailed for $37,876. Meanwhile, used-car prices are selling for an average of $26,510.
Several reasons are contributing to the stubborn car market prices. While the semiconductor shortage was to blame for the rise in prices in 2021 and has since improved, it still has not yet reverted to pre-pandemic levels. There remains a shortage of vehicles being produced. Automakers are prioritizing their most profitable vehicles, not the less expensive options. In addition, automakers have found that focusing more on profit margins rather than sales volume has become a lucrative strategy. [NPR]
o High costs and a slowing economy are causing phone companies to cut back on their expansion plans for faster internet. As Verizon Communications, Lumen Technologies and AT&T roll out their highly anticipated fiber-optic internet, the communication giants are scaling back on the number of new homes they intend to reach this year.
Higher interest rates, inflation and economic worries are reasons for the scale back. Extending fiber usually takes years to see a return on investment and running a fiber-optic line through a typical neighborhood costs an estimated $1,000 per home with an additional $1,000 to connect a home. [Bloomberg]
o Diamond Sports Group has filed for Chapter 11 bankruptcy protection. Diamond, a subsidiary of Sinclair Broadcast Group, owns 19 networks under the Bally Sports banner, including the rights to 42 professional teams across MLB, NHL and NBA. Diamond is the largest owner of regional sports networks after Sinclair Broadcast Group acquired the regional sports networks from The Walt Disney Co. for nearly $10 billion in 2019.
Diamond filed for bankruptcy after it missed a $140 million interest payment. The company has said that broadcasts for games should not be affected. Diamond is current on rights payments to its hockey and basketball teams but might withhold payments to some baseball teams as it tries to renegotiate its current agreement with debt holders. If it needs to take over broadcasts for teams, MLB is preparing with a local media department that could potentially allow for games to air locally on MLB Network or streamed on MLB.TV. [Associated Press]