"This is a commodity that has been fundamentally disrupted."
July 25, 2017 6:05 AM   Subscribe

Taxi medallions in New York City (one of the prime examples economists give when discussing rent seeking) have plummeted in value by more than half since Uber and Lyft came to town, which has had knock-on effects including three credit unions that specialize in loaning money against medallions going into conservatorship, with one analyst comparing it to the subprime mortgage crisis.
posted by Etrigan (53 comments total) 15 users marked this as a favorite
 
Marcelino Hervias bought his medallion in 1990 for about $120,000 and thought its value would hit $2 million by the time he was ready to retire.

Instead, the 58-year-old said he owes $541,000 and is driving 12 to 16 hours a day to make ends meet.


I'm no mathematician, but something is extremely wrong with those numbers.
posted by grumpybear69 at 6:26 AM on July 25, 2017 [6 favorites]


Instead, the 58-year-old said he owes $541,000 and is driving 12 to 16 hours a day to make ends meet.

Took out loans against the medallion value, and now the medallion is underwater, so to speak? So exactly like taking out a big 2nd mortgage and then seeing your house value plummet.
posted by COD at 6:29 AM on July 25, 2017 [15 favorites]


A few paragraphs down:
Many of them now owe more on their medallion loans than they originally paid for the medallions because they used their equity in the medallion for a home, a child's education or other expenses.

Hervias said he borrowed against his medallion to pay for medical care for his mother, a new car and a visit to his homeland.
posted by Etrigan at 6:32 AM on July 25, 2017 [11 favorites]


Seems like banks also thought it would eventually be worth $2 million if they loaned him that much money!!
posted by Captain Chesapeake at 6:33 AM on July 25, 2017 [15 favorites]


There must be a point at which it is better to walk away from the debt and start driving for another company. For all the problems with taxi companies and the ways in which change needed to happen, I do feel bad for people who mistimed their purchase and got caught by the drop in values.
posted by Dip Flash at 6:37 AM on July 25, 2017 [2 favorites]


This seems like one of those "if you owe the bank $2 million then they have the problem" situations. It's very possible that the original value of the medallions will never recover, so it would be in the bank's interest to renegotiate the debt. "Foreclosing" on the medallions nets them nothing.
posted by SPrintF at 6:38 AM on July 25, 2017 [15 favorites]


That was probably a very reasonable valuation when the supply of taxis was limited by the medallion system. Then, suddenly, it wasn't limited at all.
posted by Naberius at 6:40 AM on July 25, 2017 [1 favorite]


It seems like these credit unions may have encouraged scummy practices too - letting them borrow against the medallion more than was healthy.
Every time we want to go on vacation or do something, where do we go? To the equity of the medallion," he said.
posted by corb at 6:41 AM on July 25, 2017 [4 favorites]


The real problem at the labor level is that people were sold this as an idea that this was their retirement plan and have been paying on these loans for god knows how long with the idea that, like, okay, you're $500k in debt but you have an asset that's going to pay off all of that plus leave you with $1.5mil to retire on. Bankruptcy and then going to drive for another company is a workable solution for the debt part, but not the retirement part. Real estate is a similar thing--I know of people who regard homes owned in SF as their retirement accounts. Which will probably work out for them... but "probably" is not the same thing as "definitely".
posted by Sequence at 6:41 AM on July 25, 2017 [18 favorites]


Real estate in a high-demand area like SF is unlikely to tank the way the medallions have, because the scarcity of medallions was artificial while the scarcity of desirable land in SF is not. Unless an Uber For Land comes along, of course, which seems improbable. Massive earthquakes, on the other hand...
posted by grumpybear69 at 6:58 AM on July 25, 2017 [3 favorites]


The Taxi and Limousine Commission has introduced some market rule changes to try to stabilize the market.

Also, besides Uber, Lyft and other "ride-sharing" services, the introduction of green cabs has expanded the supply.
posted by Jahaza at 6:59 AM on July 25, 2017


In MA we have a nightmare situation because we've had many cops invest in medallions for their retirement. So we can't just dismiss these people as fools who put their eggs in one basket. The risk to morale in police departments around Boston is too severe.
posted by ocschwar at 6:59 AM on July 25, 2017 [1 favorite]


I'm puzzled as to why we should be especially worried about cops, as opposed to anyone else put in a bad state by the crash in value? Especially since cops usually have a actual pension to fall back on, unlike cabdrivers.
posted by tavella at 7:18 AM on July 25, 2017 [47 favorites]


because the scarcity of medallions was artificial while the scarcity of desirable land in SF is not.

As I understand it, people claim that land scarcity is very much artificial in SF due to NIMBY and zoning laws. Everyone agrees that SF needs more housing in the form of taller buildings but no one is ready to sacrifice.
posted by Foci for Analysis at 7:19 AM on July 25, 2017 [6 favorites]


Related: The Struggles of New York City’s Taxi King
posted by zarq at 7:22 AM on July 25, 2017


Real estate in a high-demand area like SF is unlikely to tank the way the medallions have, because the scarcity of medallions was artificial while the scarcity of desirable land in SF is not.

'Unlikely' is the thing. Depending on how old you are right now--I mean, if you're 50 now, I'd say that real estate is way safer than the medallions in the distance you're looking at for retirement. But the further you get away from that retirement? Maybe you're not looking at an Uber for Land kind of disruption. Maybe you're looking at an "economic factors cause all the biggest and up-and-coming companies to realize it makes more sense to relocate elsewhere" kind of disruption. Or the aforementioned "zoning laws change and suddenly there's a lot of new construction". Not that I'm saying that's going to happen, just that it's unpredictable. The SF of 30 or 40 years from now could be a markedly different place from now; do you want your retirement to only work out if it continues to have a critical shortage of affordable housing? Maybe not.
posted by Sequence at 7:26 AM on July 25, 2017 [10 favorites]


They're semi-analogous; both taxi medallions and city real estate have historically been limited to benefit the people who hold the respective items as property. However, coordinating a regulatory environment that limits the supply of housing in the bay area is easier for property owners than it is for medallion owners to coordinate to limit the supply of taxi-like services, because property owners have a much tighter control over regulatory institutions than taxi-medallion owners do.

(this is not surprising; control over scarce land is more valuable, and much more fundamental to the workings of capitalism, than is control over ride services. The big bourgeoisie all collect real estate like pokémon; few of them have ever owned and rented out taxi medallions.)
posted by You Can't Tip a Buick at 7:31 AM on July 25, 2017 [6 favorites]


Relevant.
posted by gripdamage at 7:33 AM on July 25, 2017


Planet Money also did a story on the "Taxi King" in 2015. Gene Friedman owned or controlled over 1000 taxi medallions, a billion dollars in assets.

Things aren't going so well for him now. He was recently arrested for tax fraud; he'd been pocketing a $0.50/fare tax instead of paying the state. He also has been raiding the company's payroll account, lost some medallions in a loan default, and got divorced after assaulting his wife.
posted by Nelson at 7:33 AM on July 25, 2017 [6 favorites]


"uber for land" is public housing, I guess, except uber is exploitative garbage run by exploitative garbage people and public housing is a crucial tool for establishing democratic control over the housing market by producing supply in excess of market preferences.
posted by You Can't Tip a Buick at 7:34 AM on July 25, 2017 [6 favorites]


As I understand it, people claim that land scarcity is very much artificial in SF due to NIMBY and zoning laws. Everyone agrees that SF needs more housing in the form of taller buildings but no one is ready to sacrifice.

Even then it doesn't do much good. People who spend hundreds of millions in capital to build a big building don't want no Section 8s. They build luxury apartments for the upper middle class and the people earning high six figures. The people who actually need affordable housing just get punched in the nuts when their shitty but cheap SRO housing gets bought and demolished to build these monstrosities.
posted by Talez at 7:34 AM on July 25, 2017 [5 favorites]


The thing I'd like to stress though is that whereas the systematic denial of housing is generally discussed in aesthetic terms (something like "the riches think the poor are gross and don't want to live near them"), the real driver of the phenomenon is simpler and more directly economic (something like "the most efficient way to extract value from scarce urban real estate is to block all other development nearby"). This is particularly clear in the case of Bay Area real estate, where no matter how rich you are you'll still find yourself living within shouting distance of multiple tent cities.
posted by You Can't Tip a Buick at 7:40 AM on July 25, 2017 [2 favorites]


If your competitive advantage is that you're a monopoly that artificially constricts supply you are always going to be a ripe target. You're just a deregulation away from disaster, and the folks looking to bust in have a lot of money to throw around.
posted by leotrotsky at 7:43 AM on July 25, 2017 [7 favorites]


This is also a real problem with any credentialed profession that introduces bottlenecks to protect their incomes. For example, the AMA limits the number of new doctors, but they're getting increasingly routed around and substituted when possible with mid-level providers like nurse practitioners and physician assistants.
posted by leotrotsky at 7:49 AM on July 25, 2017 [5 favorites]


control over scarce land is more valuable, and much more fundamental to the workings of capitalism, than is control over ride services. The big bourgeoisie all collect real estate like pokémon; few of them have ever owned and rented out taxi medallions.

I guess "bourgeoisie" now has the same semantic content as "hipster": just a generalized term of disgust.
posted by asterix at 8:03 AM on July 25, 2017 [4 favorites]


do you want your retirement to only work out if it continues to have a critical shortage of affordable housing?

Seems like most of the home owners in SF have made exactly this bargain.
posted by bradbane at 8:06 AM on July 25, 2017 [1 favorite]


I'm puzzled as to why we should be especially worried about cops, as opposed to anyone else put in a bad state by the crash in value?

I took that statement as deadpan sarcasm, if it helps.
posted by corb at 8:11 AM on July 25, 2017 [2 favorites]


>> control over scarce land is more valuable, and much more fundamental to the workings of capitalism, than is control over ride services. The big bourgeoisie all collect real estate like pokémon; few of them have ever owned and rented out taxi medallions.

> I guess "bourgeoisie" now has the same semantic content as "hipster": just a generalized term of disgust.


I mean look we need a word for people who make their living off of controlling access to productive resources that they claim as property, rather than through labor, and we need to be able to highlight how a few of these people — the bourgeoisie proper, rather than the petit bourgeoisie — claim to own like all the stuff. If you've got a better term for that class, please feel free to use that term instead.
posted by You Can't Tip a Buick at 8:13 AM on July 25, 2017 [17 favorites]


I have a very hard time feeling sorry for someone who borrowed over half a million dollars against a fictional asset. Especially when that asset was created specifically to keep other people from working.
posted by FakeFreyja at 8:16 AM on July 25, 2017


asterix: "I guess "bourgeoisie" now has the same semantic content as "hipster": just a generalized term of disgust.
"

Dude, bourgeoisie was a generalized term of disgust waaaay before hipster was, and before it was cool, too.
posted by signal at 8:17 AM on July 25, 2017 [30 favorites]


I mean look we need a word for people who make their living off of controlling access to productive resources that they claim as property, rather than through labor

Rentier.
posted by Foosnark at 8:17 AM on July 25, 2017 [22 favorites]


because the scarcity of medallions was artificial while the scarcity of desirable land in SF is not.

As I understand it, people claim that land scarcity is very much artificial in SF due to NIMBY and zoning laws. Everyone agrees that SF needs more housing in the form of taller buildings but no one is ready to sacrifice.


Well, the reason why the number of NYC medallions back is fixed (from the 1930s) is because if they didn't, no one would be able to move. Manhattan can hold more of a population since it's on bedrock and therefore can have high rises, but it doesn't solve the transportation problem.
posted by Melismata at 8:21 AM on July 25, 2017 [6 favorites]


> Well, the reason why the number of NYC medallions back is fixed (from the 1930s) is because if they didn't, no one would be able to move. Manhattan can hold more of a population since it's on bedrock and therefore can have high rises, but it doesn't solve the transportation problem.

right — the taxi medallion system is on the whole a means to use regulatory power against market preferences, while the real estate example is a case where market preferences are reinforced by regulatory power. In a market-governed society like ours, maintaining something that's against market preferences requires constant work.
posted by You Can't Tip a Buick at 8:25 AM on July 25, 2017 [1 favorite]


So the lesson here is don't think a moat around your business which depends on politicians to function is a real moat. Somebody with more money can buy those politicians and your moat is instantly gone.
posted by srboisvert at 8:45 AM on July 25, 2017 [4 favorites]


Well, the reason why the number of NYC medallions back is fixed (from the 1930s) is because if they didn't, no one would be able to move. Manhattan can hold more of a population since it's on bedrock and therefore can have high rises, but it doesn't solve the transportation problem.

It has other added benefits too - an unregulated system will lead to lower wages across the board as more and more competition comes in. This will lead to drivers driving longer hours to make decent money (along with faster speeds to fit in more rides) which is a key cause of accidents and injury. It also leads to more wear and tear on vehicles and fewer safe rides.

An unregulated system will also screw persons requiring an accessible vehicle as there would be no requirement for anyone to actually provide them, and while you might say "yeah but market demand", look at literally any other accessibility standard in the known world and how it takes either an incentive or a club to get businesses to serve disabled people correctly. Also look at Uber, who provide them only in markets where they're required by law. Disabled persons are a tiny market segment with a higher per-transaction cost.

The problem with many jurisdictions is the fact that there's a market for permits - having to invest in the right to work and then relying on others' investment to stop working creates a bizarre, exploitative semi-market. If drivers were properly compensated with a retirement plan and health care, you would not need to buy a $1m asset to finance your current and future needs.
posted by notorious medium at 8:51 AM on July 25, 2017 [10 favorites]


Uber and Lyft flourished partially because the medallion system hobbled innovation and protected scummy owners. Granted, Uber, and Lyft to an extent, are also quite scummy. But it's not like the taxi industry was a bunch of honest, hardworking folks. It was rife with rentiers who opposed change, and opposed technology. Getting a cab to come pick you up used to be a huge pain in the ass; Uber and Lyft have made that easy.

At some point, perhaps a long, long time ago, the medallion system should have moved to something that didn't guarantee ownership into perpetuity, and didn't allow one person to own the medallion and allow someone else to drive on it. The goal is to limit the number of cabs on the road, but that doesn't mean the medallion itself should be an investment.

I'm not entirely sure how the system would work, as a lottery would mean someone could be a cabbie one year, and out of a job the next, but there has to be some happy medium between that and one guy owning dozens of medallions and raking in income despite never driving a single cab.
posted by explosion at 9:19 AM on July 25, 2017 [8 favorites]


Totally, explosion. Here in the Boston area, when the poor medallion owners cried that they would no longer be able to gouge people at Logan Airport, my only, only thought was YOU GUYS FRIGGIN' GET WHAT YOU DESERVE.
posted by Melismata at 9:28 AM on July 25, 2017 [2 favorites]


I'm almost certain that nobody is getting what they deserve.
posted by allthinky at 9:43 AM on July 25, 2017 [2 favorites]


It has other added benefits too - an unregulated system will lead to lower wages across the board as more and more competition comes in. This will lead to drivers driving longer hours to make decent money (along with faster speeds to fit in more rides) which is a key cause of accidents and injury. It also leads to more wear and tear on vehicles and fewer safe rides.

Medallions don't limit labor competition, they limit capital competition. Labor (drivers) still compete wages down. Medallions aren't licenses to drive a taxi, they're licenses for a taxi to operate.
posted by L0 at 10:01 AM on July 25, 2017 [3 favorites]


Medallions aren't licenses to drive a taxi, they're licenses for a taxi to operate.

With a fixed number of medallions, there are a fixed number of taxis on the road. This limits labor to the number of shifts available such that all the medallion cabs are on the road.
posted by notorious medium at 10:36 AM on July 25, 2017 [2 favorites]


We replaced one pile of shitty ethics for another.
posted by Annika Cicada at 11:45 AM on July 25, 2017 [1 favorite]


I was hit by a taxi on my bike and thus discovered that the Taxi companies had structured themselves so as to have zero liability. I was assaulted by a cab driver and found that there was no recourse. I was on a jury for a court case where a woman was killed in an accident where she was a passenger in a cab and saw that the system was set up to take no responsibility. I lived in an area of NYC underserved by taxis and could rarely/never get a ride to or from my home for a decade. I'm sure the medallion system is bad for the workers and the worker-owners, too, in ways that I don't understand and would never advocate for anyone losing their job. But does anyone think that the system (rather than the workers) is actually worth saving? I lived in NYC for 20 years and thought that the taxi service was awful the entire time.

Aricebo, on the other hand, is also going down and *that* is a real fucking tragedy.
posted by n9 at 12:59 PM on July 25, 2017 [8 favorites]


Aricebo, on the other hand, is also going down and *that* is a real fucking tragedy.

Wait, what? I still use them. They have an app now and everything.
posted by phooky at 1:47 PM on July 25, 2017


the medallion system was insane... its hard to feel bad that the false scarcity monopoly has finally been broken.
posted by mary8nne at 2:44 PM on July 25, 2017


It warms my heart to see rent seekers bit it, if it's investments by rent seeker cops so much the better. I just want a privacy preserving alternative to Uber and Lyft so that you can jet around town without leaving a record.

I think real estate could get interesting in the long term too: We might witness nations tighten immigration rules in response to migration brought on by global warming, so population might not increase even locally. We do want to live in places with culture, as opposed to a corn field, but individuals only care about regular access to a small sliver of cultural offerings. If we work remote, then we can find smaller cities with a higher than average concentration of others with similar interests, and visit larger cities, irregular events, or festivals for variety. "Welcome to TangoVille's annual Jazz festival!"

It's true a few instructors can keep an army of hobbyist entertained. It'll be harder if your hobby is passively consuming live performances, as they require considerable work by many performers and no work on your part, so an NYC makes more sense if you absolutely must go to Broadway plays all the time, but maybe youtube can substitute.
posted by jeffburdges at 3:18 PM on July 25, 2017


Real estate in a high-demand area like SF is unlikely to tank the way the medallions have, because the scarcity of medallions was artificial while the scarcity of desirable land in SF is not.

People need to not look at taxi drivers like shmucks who got what was coming to them.

The scarcity of medallions was not artificial. There have been between 13,000 and 16,000 medallions in NYC for eighty years. Owning a medallion was a big fucking deal. It meant financial security to the owners, and created wealth for blue collar workers for generations. What devalued them was not a flood of new medallions, but the flood of un-medallioned rides that pretty much nobody saw coming.
posted by DarlingBri at 6:28 PM on July 25, 2017 [1 favorite]


Medallions as financial security for blue-collar workers died around 2000, though, when medallions got poisoned by financialization, like practically everything else in the 21st century.
posted by tavella at 6:55 PM on July 25, 2017 [3 favorites]


The scarcity of medallions was not artificial. There have been between 13,000 and 16,000 medallions in NYC for eighty years.

And the number wasn't increased because... the medallions had to be made of Unobtanium? Because there were contracts with demons that prevented new medallions from being forged? Because a scientific comparison of the population, number of businesses, and miles of road had been done to establish that this was the optimum amount of medallions that would be beneficial to the city, and that calculation hasn't changed in 80 years?

"We kept the number the same despite a growing demand for more so that the people who already had theirs could make more money" is pretty much the definition of artificial scarcity. There was no reason the city couldn't have doubled or tripled or multiplied by ten the number of medallions - other than that a lot of people were making money on them being rare.

...Right up until their rarity wasn't providing a benefit you couldn't get elsewhere. That's the problem with artificial scarcity: if someone finds a workaround the whole market collapses.

I am sympathetic to taxi drivers who had their retirement plans yanked away by a switch in technology. Most of them were not attempting to scam anyone; they had little idea why the medallions were rare and certainly no ability to influence the system directly. But I don't weep for the loss of a limited business license being used as a money-machine that had nothing to do with the business itself.
posted by ErisLordFreedom at 6:57 PM on July 25, 2017 [6 favorites]


while the real estate example is a case where market preferences are reinforced by regulatory power.

This is the complete opposite of how I look at it--market preferences would be to buy open space, develop, and sell for a profit. If you cast a literal shadow on the people who you sold the last lot to, who cares? If you make a city unlivable with sprawl and limited infrastructure, what does it matter? That just gives people an incentive to buy the next plot of land you'll sell them. The damage you do are all externalities.

So the lesson here is don't think a moat around your business which depends on politicians to function is a real moat. Somebody with more money can buy those politicians and your moat is instantly gone.

Sort of, but this falls into the trap of thinking there is a 'natural' market and laws and regulations only distort it. Any market can be destroyed by changing the rules of the market place.
posted by mark k at 9:56 PM on July 25, 2017


Did these medallions also give immigrants a chance to get a green card and US citizenship?
I thought I saw a medallion go for $1,000,000 a few years back on the TV news. It sounds like a bubble has burst.
posted by Narrative_Historian at 2:07 AM on July 26, 2017 [1 favorite]


The scarcity of medallions was not artificial. There have been between 13,000 and 16,000 medallions in NYC for eighty years.

You can make a lot of perfectly coherent arguments in favor of the medallion system, but the scarcity component is the epitome of "artificial." New York hasn't gained any landmass in a long time, because that's a natural scarcity. How many cars are legally allowed to pick up passengers and take them somewhere in return for money is not going to be limited by nature.
posted by Tomorrowful at 7:47 AM on July 26, 2017 [4 favorites]


You can make a lot of perfectly coherent arguments in favor of the medallion system, but the scarcity component is the epitome of "artificial." New York hasn't gained any landmass in a long time, because that's a natural scarcity. How many cars are legally allowed to pick up passengers and take them somewhere in return for money is not going to be limited by nature.

The physical nature of limited road space?
posted by Iax at 10:25 AM on July 26, 2017 [4 favorites]


Since way under 1% of cars in NYC are taxi cabs, and no government restrictions are placed on other people who want to have a car in the city, I think it's still safe to say the medallion is an artifical and not a natural limit.
posted by mark k at 9:08 PM on July 26, 2017 [2 favorites]


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