Reckless Loans Devastated a Generation of Taxi Drivers

As of 2012 (the last year for which I have data, fewer than 88% [EDIT: 80%] of taxi medallions were owner operated [1]. (A declining fraction.)

These loans were taken by financiers, not drivers. The anti-ridesharing messaging is predominantly funded by corporate medallion owners, not by drivers.

TL; DR This is a co-ordinated media campaign. You have better things to pay attention too.

[1] https://en.m.wikipedia.org/wiki/Taxicabs_of_New_York_City

People blame Uber & Lyft for the current condition of Taxi drivers, but the blame falls solely on the medallion system. Simply a corrupt, greedy and exploitative industry eating itself out of existence.

The street food vendor market in NYC is also really screwed up. https://www.nytimes.com/2017/04/18/dining/halal-cart-food-ve...

> If Mr. Hoque gave him $50,000 that day

That's really all I needed to read: "that day". If someone is putting pressure on you to buy something "that day" - it's likely a scam. I am not sure how this guy didn't read the loan docs.

I bought a house recently and learned how in Canada you literally cannot buy a house you can't afford if your finances are stressed. They test your income for a hypothetical rate hike and your payments must not exceed a certain percentage of your income. There's other safeties too, such as requiring 5% down but significantly incentivising putting >= 20% down.

Can we not have the same kind of thing for all loans? Ie. It becomes illegal to lend money with terms that the borrower cannot reasonably afford?

On another note:

"Over 10 months, The Times interviewed 450 people, built a database of every medallion sale since 1995 and reviewed thousands of individual loans and other documents, including internal bank records and confidential profit-sharing agreements."

From this I finally grokked what I'm paying for, and just subscribed to my first periodical.

The political machinery in America receives a tremendous amount of input from private industry, which in turn influences how things are regulated. And then when things go bad, everyone can say it was just a big mistake. Maybe it'll end a few careers, but that's about it.

The immigrants in this story had no input in any of this. They had no representation, no influence. They're among the poorest and least influential people in our society, and the finance industry just ran roughshod over them.

This will keep happening as long as "we all made mistakes" remains a viable out for these institutions.

The NYT has written about taxi medallions for many years. The contrast in their writing on them is pretty striking:

https://cityroom.blogs.nytimes.com/2011/10/20/2-taxi-medalli...

I had more boosterism bookmarked back in the day but lost it.

This is a special case of Michael Crighton’s amnesia, where even the NYT forgets how incompetent the NYT was at getting this story right.

Looking at the data in the graph of medallion prices is very interesting. They do chart the main line and the 60 day moving average, but it looks like there's an interesting secondary trend in the data, where there's another line of sales that looks fairly contiguous but is lighter which seems to be about 25% or maybe 33% of the higher line. Also it looks like there are some higher lines that look stair-step (probably using round numbers for the prices). I wonder if these are other sellers or groups, but it seems like the lower line might be the actual value of a medallion in a not ridiculous price inflation way?

The fact that the ability to drive people about in a car became subject to a financial instrument as a barrier to entry is the real story here.

There are other cities in the world which don't have such an absurd system and they seem to be doing just fine.

Uber may be outcompeting them, but they haven't taken on mortgage levels of debt.

> Over 10 months, The Times interviewed 450 people, built a database of every medallion sale since 1995 and reviewed thousands of individual loans and other documents, including internal bank records and confidential profit-sharing agreements.

This ... is so great. I'm glad the NYT continues to do real journalism instead of succumbing to the Buzzfeed/Social Media whizbang latest breaking news that the TV media has become.

I suppose it's nice to hear that Uber is not uniquely exploitive of drivers - or even the worst, if I'm understanding things correctly.

It's interesting that the graph of taxi medallion sales seems to show a trimodal distribution: most sales are close to the market price, but many are consistently at half the market price, and others are much higher, especially during the bubble years.

What could be the meaning of this pattern?

This is one reason powerful interests came out of the woodwork against Uber and Lift in New York. Ridesharing services blew the whistle on how grotesquely distorted the taxi market was before the corporate vampires were done sucking the blood out of vulnerable marks.

How many times do we need to see this repeating pattern of debt bubbles to address the rigged game?

Remember the concept of indentured servitude? Outrageous debt is the continuous (non-discrete) version of slavery. Yes, there is always implicit debt for many transactions. And yes, there is a level of healthy debt that allows one to purchase a productive asset which pays back its own loan, rather than needing to sharecrop it. But we're at the level of long term loans never intended to be paid back, rather to collect a steady steady of rent from those who produce. Facilitated because the capital being put up is ultimately not theirs (it comes from public markets because it has nowhere else to go), but the fees and a portion of the income stream is.

So what we're seeing is that anything that can be titled, abstracted, and traded ends up heavily financialized. As funny money bids up the underlying asset prices, more people are pushed into needing loans, furthering the cycle. And the people who've bought into the bubble want to see it continue to inflate - it's the only way their rentloan can possibly work out!

Until some underlying factor causes the whole thing to come tumbling down - limits of financial modeling, too many people going to college, or a hack to get around taxi supply constraints. By that point most of the loans have been sold off to dumb money investors, and Wall Street is already working on the next bubblelicious sector.

The straightforward answer for sustainability is to raise interest rates, significantly. This would reduce the amount of dumb money seeking any place to go, increase the ability to pay off loans early by making higher than the minimum payment, as well as shortening the timeframe of most loans in general.

We've been running near zero since Bush II needed a bunch of free money to act out his daddy issues. The fact that we're looking at banks paying a few percent as something novel really just demonstrates how warped our perspective has become. We're repeatedly told that rates must be kept low, and volumes of new money/debt issued, to assure inflation. Yet in a technological economy, we should be seeing natural deflation! But rather than the gains of technology, productivity, and outsourcing being seen by the middle class, they're being funneled upwards by this debt treadmill.

Lenders say they thought medallion prices would keep going up, but I don’t see how that is possible. At the end of the day, a medallion is a license to charge a set rate per mile (or minute) in one car. There’s a limit to how much you can make from a medallion. Any lender who isn’t a moron knows that price can’t keep going up.

The article focuses on the "predatory lending" narrative, but only briefly touches on what enabled all of this: Government regulation.

Like most professions, Taxi drivers lobbied for regulation to keep the inflow of competition down. They got it in in the form of the taxi medallion: No one shall be allowed to drive without it - and the supply is fixed.

Around the inevitable shortage that ensued, a cottage industry of medallion-hucksters emerged, driving the price to insane highs in places like NYC.

Drivers who didn't see (or understand) the risk were brought to "mortgage" these medallions at inflated prices, but with the emergence of Uber/Lyft the value of those medallions dropped. The government, scrambling for a scapegoat, then tries to ban Uber/Lyft.

Let’s see really the story here is:

asset class [X] declines in value due to [new market entrants] - those that purchased this asset on a levered basis were hurt the most

It's times like this that I'm really jealous of the foresight of the likes of Norway.

Norway as we know has massive oil reserves. Most other countries (I come from Australia where digging stuff up from the ground and selling it Asia is in our DNA apparently) would for a small cut make some small number of companies and the individuals who control them mind-bogglingly wealthy. Norway, on the other hand, created a state majority owned company and taxed it highly, largely for the benefit of its citizens.

In this case, NYC created the taxi medallion system ~80 years ago to limit the number of cabs on the road. This made sense at the time but why sell off the right to drive that taxi essentially in perpetuity? It makes no sense.

Why not instead have an annual auction based on how many taxis you want on the road where whoever pays you the most gets allotted a license? The city would get income in perpetuity and financial fuckery like from this post just couldn't really happen. Hell you could even have a spot market for your license (for the remainder of the year) to allow people to get out from under it.

But no, instead we have human vultures preying on the uninformed and desperate. Another win for capitalism.

Interesting how the dominant narrative in NYC a year ago was "Uber is making taxi drivers commit suicide", and now we're seeing that revenues are down only 10%, and the real grift is from the finance guys extracting all the value in the medallion/transpo market.

I think we're seeing a huge confluence of relatively independent factors coming together through the form of "private equity" that are going to make like much more challenging for the bottom 80% of the population. PE fueling a boom and essentially usury in taxi medallions. Firms like blackrock and other large REITs buying up an insane amount of homes, jacking up rents and evicting people. Essential services like 911 dispatch and ambulances being taken over by PE firms and squeezed to the point of either uselessness (dispatch) or usurous practices (ambulance billing). I believe in markets and capitalism, but it's hard for me to see these changes and not sympathize with the new wave socialists in the US.