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Uber and the Great Taxicab Collapse

Should taxpayers bailout bankrupt medallion owners?

When Andrew Murstein hired pop music super star Nicki Minaj to headline his son Matt’s Bar Mitzvah, it was an unusually conspicuous flaunting of wealth by one of New York City's leading taxi cab magnates. Newsweek estimates that Minaj might have been paid as much as half a million for the gig, which entailed taking a personal photo with every single boy and girl in attendance.

Andrew Murstein’s vast wealth derives from a shrewd decision that his grandpa Leon made 78 years ago. In 1937, New York City issued what ultimately amounted to 13,437 taxi medallions—a special kind of license that conferred the exclusive right to drive a cab in the Big Apple. And Leon Murstein bought one...for $10. And then he bought several hundred more to rent to other drivers.

From 1937 to 2013, the price of each of those medallions climbed from $10 to over a million dollars.

"Ultimately all that value that’s built up in the medallions comes from passengers,” says Josh Barro, a reporter with The New York Times, who covers the taxi industry. “Fares are higher than they otherwise would be able to be because you have to limit the number of people using these taxis."

Over the years, the city tried periodically to break the medallion cartel to make life easier on the riding public, but to no avail.

And then in May of 2011, Uber began operating in New York City. For the next two and a half years, the taxi industry kept thriving. In November 2013, Medallion Financial, the publicly traded company that’s run by Andrew Gene Freidman is the city's largest single medallion owner.Jim EpsteinMurstein, saw its share price hit a thirteen-year high. But as more and more Uber cars took to the streets over the next year and a half, the stock plummeted, ultimately losing about half of its value.

The average number of trips taken in a cab each day has fallen and average farebox revenue has fallen. Taxi garages are jammed with parked cabs because they can’t find enough drivers to hire. They’d all rather go work for Uber.

“It really is remarkable how these monopolies that couldn’t be broken for decades were broken so quickly,” says Barro, "but I think it’s because of Uber moving first and saying, ‘we’re going show people how this thing can be different, and then we’ll have the fight over whether we want that different thing or not.'"

The Mursteins diversified out of the medallion market long ago, so they’ll end up rich no matter what happens. But Gene Friedman, the city’s largest single medallion holder with an estimated 900 to his name, is in deep trouble. He has been sued by the attorney general for ripping off his drivers, flagged as a tax delinquent, and a handful of the taxi garages he owns have filed for bankruptcy protection. In April, Friedman arranged a private meeting of bankers, medallion owners, and elected officials to build support for a city bailout.

“It’s a scream by a child for attention,” says Freidman. 

His idea is that the government should step in and offer a loan guarantee so taxpayers would take the hit if medallion prices were to keep tumbling. 

“It is not a real bailout because we’re not asking for a penny here,” says Freidman.

“The problem is that if the city is guaranteeing a repayment on a medallion loan at a level exceeding the actual market price of a taxi medallion,” says Barro, “for millions and possibly billions of dollars in lost value on medallions."

Alaa Khalil is an Egyptian immigrant who spent years driving someone else cab about 90 hours a week. In 1994, he’d finally saved enough to make a down payment on his very own medallion, which cost $178,000. 

Taxi driver and medallion owner Alaa Khalil says Uber "messed up" his life.Jim Epstein"Between 1994 and 2013, it was a really good life,” says Khalil. "Since Uber invaded our business…it messed up my life."

Khalil says he’s now on the verge of financial ruin. He struggles to find customers, and Uber has taken away much of the lucrative airport business. He recently stopped making payments on his credit cards and is struggling to pay the mortgages on both his medallion and on his house in Bay Ridge, Brooklyn. 

For Khalil, selling his medallion is no longer an option because there’s no liquidity in the market. Nobody even knows what a medallion would sell for at this point because in the past four months there hasn’t been a single sale. Just five bank foreclosures.

But Khalil wouldn’t be in so much trouble if he hadn’t treated his medallion like a cash register over the years. As its price soared, he took vacations, bought an expensive house, and a luxury car. Overall, he borrowed an additional $300,000 against the value of his medallion.

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  • Lorenzo Valla||

    A report covering a taxi industry... hmm.

  • marjorie567||

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  • KerryW||

    Start making cash right now... Drive for Uber

  • plusafdotcom||

  • Sevo||

    "Should taxpayers bailout bankrupt medallion owners?"

    Yeah, along with buggy-whip makers.
    Sorry; you made a bet on rent-seeking and lost. Tough beans.

  • Jimbo||

    Aren't their children as part of this story? Then we need to do it!

  • dantheserene||

    This is much worse than buggy whips, which had some inherent value. Medallions only have value because they are (were) backed by government force which allowed higher than market rates to be extracted from non-medallion owning drivers and ultimately the customers. Medallions add zero value to the transaction beyond protection from government agents.
    Without government enforcement, they aren't worth the paper they're printed on.

  • C. S. P. Schofield||

    While I don't admire or support the Medallion system, I don't think it's stricktly fair to say it added nothing. It, at least in theory, added imspections, making sure (again, in theory. How well it worked in practice is another matter) that the cabs were running safely and at least marginally sanitary.

    Whas this needed, or wanted? That's another issue.

  • Rhywun||

    "Should taxpayers bailout bankrupt medallion owners?"

    Um... ahem... how do I say this?

    FUCK NO.

  • Illocust||

    Why doesn't he just forfeit the medallion to the bank? If it is the collateral for the loan and he can make just as much by working for Uber it would seem to be the smart decision. I will admit I know essentially nothing about getting loans from banks, so feel free to call me an idiot as long as you explain why it won't work.

  • Jimbo||

    That seems to make sense, unless he added other assets as collateral.

  • William C.||

    For realsies. It seems as though he'd rather just complain all the way to bankruptcy and poverty. Taxis are dying, just move on people.

  • Mr. Flanders||

    Sure, if he wants his credit ruined by defaulting on payment. At this point, it sounds like the collateral wouldn't sell for enough to pay off his debt, if it would sell at all. After giving up the collateral voluntarily, the Bank could still take him to court for the remaining balance owed. He'd be financially devastated for around a decade. Better to figure out a way to keep making loan payments.

  • Fairbanks||

    "...explain why it won't work." Work for what? Getting him out of his financial predicament? Driving for Uber doesn't solve that. The bank will sell the medallion for a % of the loan value, and then go after the driver for the balance of the loan. He can't just turn in the medallion and walk away from the loan.

  • dpbisme||

    Who would not feel for the Individual Taxi Cab driver that has actually bought one of these from the Government, ya, they were more or lesss promised a , that is the whole reason they bought them.

    BUT

    So guy who has been renting them out for profit, not so much.

  • rudehost||

    I feel about as much sympathy for them as I do for the people who lost their jobs when the nazi concentration camps closed. They were part of an evil price gouging cartel and they were ripping off every single customer. Screw them.

  • Mr. Flanders||

    That's a drastic comparison. Too drastic.

  • C. S. P. Schofield||

    Now, now, that's a tad over the top, neh?

    How about we feel as much sympathy as we,feel for the out-of-work Prohibition Agents, circa 1934?

  • John C. Randolph||

    Shit, I wish I'd know there was a publicly-traded company whose value was dependent on taxi medallion prices. I would have shorted the hell out of hit.

    -jcr

  • ||

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  • plusafdotcom||

    Go get a date with Marjorie and get rich, asshole troll...

    http://www.plusaf.com/linkedin.....brains.jpg

  • macsnafu||

    Now, seriously. How many people who read Reason are actually going to say, "Yes, I think the taxpayers should bail out the bankrupt medallion owners."? Why is it that taxpayers should be held responsible for bad government policies? Or for helping people who willingly restricted their competition through government coercion?

  • Hank Phillips||

    Hell yes rob the taxpayers and pay them back ten dollars apiece for their precious medallions. And restitute hack owners for the business they lost to automobiles. In fact, if they just ban cellphones--have the TSA confiscate them at NY airports--that will put those snooty rich people in their place and save the monopoly of collusion to fix prices.

  • Hank Phillips||

    Isn't this the same sort of system that was forced on NY callgirls before their apps came online? Who's gonna pay those cops restitution for all the fellatio they're now going to have to pay for? They might have to pawn their badges! And what about all the poor pimps who have been paying honest graft to Island of Vice commissioners, courts, vice squad agents and beat cops? Let's see the GOP and Dems bid for those votes with taxpayer-funded bailouts.

  • Griffin3||

    Can I have a big "Fuck off, slavers!" Anyone? Anyone?

    I spent the entire day tearing out an old fiberglass shower stall with my kids, putting up cement board, and tiling up the first 3 feet of the wall all the way around the toilet to the sink [it has to dry before you can go up any higher]. I'm already being taxed AT LEAST 30% on any capital gains, to help people that don't bother to work, or didn't bother to get the skills to work, or don't even care enough about their own damn health to keep themselves in a condition to work ... I'll agree to a taxpayer bailout of some asshole cabdriver who borrowed $300,000 against his medallion when shit sticks to the moon, baby.

  • Rhywun||

    How about "eat shit and die" to any of these leeches wanting to charge their lavish lifestyles to my bank account? That good enough?

  • plusafdotcom||

    Spot on, and I'd suggest an IQ transplant for the fucking moron who mortgaged and remortgaged his medallion to riches followed by bankruptcy...

    I trust he had NO knowledge of what happened during the Housing Bubble or why it happened?

    If the IQ transplant doubled his score, he MIGHT make it into double-digits!

  • Tionico||

    maybe the guys buried in their Mother May I plates could start double-dipping... taking Uber fares when there are no licensed ones. Its THEIR cab and time, isn't it?

    I've known for 20 years plus that the hack plate is a ripoff. Last cab I took was in Managua, Nicaragua in 1998. Hailed an ancient broncial Lada for a 12 mile ride. Great guy, so was the other passenger we took on (yes, two separate unconnected fares at the same time.. its HIS car and time, ain't it?) and it cost me ten bucks.

  • plusafdotcom||

    Scores of years ago the same kind of shit went down in NYC with their limitations on Medallions. I watched that back then and wondered, 'what kind of assholes are they, anyway?'

    Now it's today... Same Assholes, Different Day.

    Follow the money?

    No, follow the Desire to Control Others.

    You can tell where the incompetents are by the laws like these they try to pass or enforce.

  • Richard Stallman||

    The worst things about Uber, which people mostly do not mention: it is a system of massive surveillance since passengers must identify themselves, and it requires running a non-freedom-respecting app on a non-freedom-respecting operating system.

    I will never consider using Uber as long as either of these remains true.

    See http://stallman.org/uber.

  • susan567||

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    www.jobnet10.com

  • Jason Vick||

    Most of taxi driver are against Uber application

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