'We Were Wiped Out’: New Yorkers Preyed on Chicago Cabbies
nytimes.com
nytimes.com
They just forgot that “when your taxi driver is talking about investing, its time to sell” and they were the literal taxi drivers in the adage.
The blunt reason is because they are the bottom/edge of society’s universe of investors, so there is nobody else to sell an asset to at a higher price.
The same result would have happened eventually, the arrival of Uber & Lyft exacerbated the outcome much faster.
Isn't that how all investment assets are sold?
> the seller not disclosing & misrepresenting the fact that they intended to glut the market and thereby drive down the price
I mean, the seller wasn't trying to crash the price. They just had a bunch of medallions to offload. It doesn't seem like it's incumbent upon a seller to inform the market that it has other medallions to sell. Certainly no other financial markets work this way.
> It's technically not securities fraud, but it has a similar flavor, so I wouldn't characterize this as a market working as intended.
It really doesn't, though. This is how all markets work. Nobody informs buyers of AAPL stock that they are trying to sell a billion dollars worth. They sell little chunks at a time to minimize their impact. That's just good order execution.
The movie Margin Call makes an excellent depiction of what is just good order execution. Skilled sellers know if they're selling at the top. Should the buyers in the movie not have been upset at the sellers because that's how markets work? Yes and no. The buy/sell relationships in the movie worked because there had been years of trust built up, which the Kevin Spacey character was worried about destroying. He warned that they'd never be able to buy/sell in the market again if they offloaded their position in the manner they did, that nobody would trust them anymore. When there's a salesperson involved, people who buy investments typically trust the salesperson, or else they wouldn't buy.
You can argue that buyer beware should be the default defense. And this is not wrong, but if the salesperson is good enough, they break down that defense anyway. More importantly, taking the trust out of the transaction also takes the humanity out of the transaction. I don't think we should blame buyers if they were sold something on deeply human emotions (trust, camaraderie) and then have opposite deeply human emotions (betrayal, anger) if they find they were played. The sellers knew what they were doing from the beginning, according to the article. Hence, the buyers felt played. That's not something where I'd blame the buyer for being unsophisticated. I blame the seller because when one side has significantly asymmetrical information, that is preying.
https://marginalrevolution.com
And in general, finance journalism is good too (e.g. bloomberg/wsj/economist). It has its own biases, of course, but they're often more transparent. The bias of finance journalism is in favor of money. Anything that threatens people's money, they're against. But that bias is fairly easy to understand and correct for.
> Some adopted an especially aggressive approach, according to documents and interviews. First, they purchased medallions at bargain rates and established big fleets of cabs. Then, they pumped up medallion prices. Finally, they sold their medallions to their drivers and to rival fleet operators just before the collapse.
Take each claim one by one:
> First, they purchased medallions at bargain rates
How did they get them at bargain rates?
> Then, they pumped up medallion prices.
Again, how? Did they somehow drive the population increase in NYC?
> Finally, they sold their medallions to their drivers and to rival fleet operators just before the collapse.
Did they sell the medallions or finance them to drivers, because earlier in the article it says:
> They inflated medallion prices, provided high-risk loans to buyers and collected interest and fees before the bubbles burst and the markets collapsed.
If they financed them, the drivers defaulted and the collateral was worth a lot less than originally valued at.
The whole article is a weird hodge-podge mess of trying to find victimizers and victims. People who bought medallions between certain years are victimizers but those that bought them after the peak are victims and New Yorkers (?) in Chicago are especially bad.
Many were immigrant cabdrivers who could not speak English fluently and signed loans they could not afford, lured by the promise of easy wealth and a secure future.
This is where the narrative of victim and victimizer breaks down. Consider one of the sad tales from the article:
> “They used us to get rich,” said Demetrios Manolitsis, 52, a Chicago cabdriver from Greece. Mr. Manolitsis, who started driving in 1992 and owned an extra medallion as an investment, said New Yorkers in Chicago convinced him to borrow money to buy 15 more medallions at the height of the bubble, when prices were skyrocketing and the asset seemed invincible. He is now buried in debt and on the brink of losing everything.
He's both an opportunistic speculator buying 15 (!) medallions and a victim who was conned. Depending on when the market took an eventual downturn he could have been a villain. He could have been part of the ominous "they" sprinkled throughout the piece!
I would describe him as a victim of greed, as he already had another medallion as an investment. For him to be regarded as a 'speculator' in this context ─ he could have averted financial ruin by conducting due diligence before acquiring toxic assets and/or hedge his bets. If one were to consider him opportunistic, he should have been savvy enough to know, when to get out and leave others holding the bag. Since, he seems to have exhibited none of the predatory behaviour associated with a conman, it is a bit presumptuous to speculate on his villainous tendencies.
> For him to be regarded as a 'speculator' in this context ─ he could have averted financial ruin by conducting due diligence before acquiring toxic assets and/or hedge his bets.
Is the term speculator contingent on financial success?
> If one were to consider him opportunistic, he should have been savvy enough to know, when to get out and leave others holding the bag.
Is opportunistic contingent on someone being able to tell the future and know when prices are at their peak?
> Since, he seems to have exhibited none of the predatory behaviour associated with a conman
I imagine he wasn't using all 15 of his medallions simultaneously. Presumably he was renting out his medallions to other and profiting off their labour. Is this predatory?
> it is a bit presumptuous to speculate on his villainous tendencies.
You miss my point. I reject the entire notion of victim and victimizers in this context. The analogy doesn't fit. If you buy 15 of a valuable and high growth asset on credit, you're a speculator. And that's fine. There are no villains here, just some who were fortunate in timing and other who were less fortunate.
Well that goes without saying. (I jest of course. I have no dog in this fight and think they are both great cities.)
Instead of some bizarre conspiracy theory about unnamed group of individuals that can manipulate prices, lure just the right speculators at the very peak and move on, why can't it just be that there are some speculators that did well and others that entered too late and lost out? Why does everything have to be viewed as a victim/victimizer paradigm?
[0] https://www.cbsnews.com/news/how-much-is-a-nyc-taxi-medallio...
You can do that kind of scam on all sorts of things. The guy in the article who took out a loan to buy 15 medallions is an obvious victim of a pump and dump scam: He did something really naive in the hopes of a big investment win. The fact that it happened to be cab medallions isn't particularly important, if it wasn't those it could have been crypto or foreign currency or penny stocks just as easily.
But really, I don't see what's unique about the taxi market as opposed to any other market, where we don't put a limit on supply and things work out just fine.
Ride shares like Uber and Ola, a myriad delivery services, and privately owned rickshaws are choking the city. We’ve basically handed the city roads over to last mile logistics and ride share companies to the extent that one can’t safely drive in the city because everyone else on the road has a delivery/pickup deadline to meet.
It has gotten to point when I get calls from people I barely know asking me to teach them how to drive so that they can work for Ola/Uber/Last mile logistics.
Eventually, we’re all going to become shut ins because the alternative is to risk life and limb trying to share the road with people who are trying to play chicken with each other just to get somewhere a minute earlier.
Evidence suggests that the market clearing price for taxi services is below the subsistence level for the people doing it, and above a tolerable level of cars and congestion.
Your basic premise is also unsound. Markets produce failures and unstable situations constantly, and the government steps in to address what would otherwise be a market failure.
We license hairdressers and financial planners, we inspect airplanes and meat, and a million other things. In nearly every case it’s for the same reason we regulate taxis, which is that we tried not regulating it and were unhappy with the outcomes.
I'm broadly in favor of more regulation, as a way to protect consumers. However, this is absolutely not the example I'd choose. Hairdressing licenses (and a lot of similar laws) are overwhelmingly bad regulations which exists to protect a minority of incumbents.
https://www.npr.org/sections/money/2012/06/22/155596305/epis...
You don't want licensing and regulation of hair dressers? Enjoy your Hepatitis.
Ironically, here in Phoenix, they used to regulate taxis but now they don't since those rules were too much for Uber/Lyft to legally comply with.
They didn't regulate supply like the other cities but the cabs would have to get a sticker from Weights & Measures once a year that ensured they complied with things like proper insurance, the meter operated correctly, prices were clearly marked on the outside, &etc... Also had on the road spot checks by Weights & Measures and passengers had a phone number to call if there was some sketchiness going on with their rides.
Once the Weights & Measures started hunting the Uber/Lyft "illegal livery service vehicles" the laws changed so now there's no longer anyone ensuring the cabs uphold even a minimum standard -- though, honestly, 99.9% of the iffy cabs were squeezed out of the market since they simply can't compete with SV billionaires trying to put them out of business.
These days the cabs you see running around the Phoenix area are mostly just hauling people to/from doctors appointments through insurance company accounts.
Of course, it would help a great deal if the medallion system were combined with limits on private vehicles...
Maybe what it boils down to for me is that congestion pricing, in theory, may be a valid option. But in its implementation it accomplishes very little except increasing bloated budgets for organizations that focus too little on their actual mission.
Of course, that $300 leaves out the cost of the car, maintenance on the car, insurance, etc. The cost of the bus needs to account for all of that.
Would it though? If the supply of taxis was more ubiquitous is would drive down relative demand and therefore prices, as well as making it much easier to find one. The net effect could be fewer people driving their own cars and an overall net reduction of cars on the road.
Though I think better, ubiquitous mass transit would do far more in that direction, though the infrastructure costs for that are enormous: The figure $1 billion per mile of rail comes to mind. Better bus transit might work much better though for cheaper.
It seems like we do have such a system but we’re not enforcing the law properly.