Reckless Loans Devastated a Generation of Taxi Drivers

https://www.nytimes.com/2019/05/19/nyregion/nyc-taxis-medallions-suicides.html

by sho • 7 years ago

90 89 7 years ago

DuskStar• 7 years ago

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.

save_ferris5• 7 years ago

It's nice to hear that a company we all thought was brutally exploiting drivers isn't even the worst offender?

What exactly is nice about that?

xmprt• 7 years ago

I don't see how Lyft or Uber are brutally exploiting drivers. They could be paying more but there's nothing forcing drivers to drive. The only people I see ride sharing companies harming are the taxi drivers who are stuck with medallions.

gridlockd8• 7 years ago

I always wonder how it is "exploitation" of drivers to bring them customers and pay them at a loss, thanks to venture capital. Can you explain this to me?

b_tterc_p2• 7 years ago

Let’s imagine a slave cotton plantation was unprofitable due to poor weather, some burglary, and other external factors. Is the cotton plantation not exploiting the slaves?

The final profit margin has nothing to do with the concept of exploitation.

save_ferris5• 7 years ago

Because once rideshare companies corner specific markets, they're no longer incentivized to keep paying drivers competitive rates.

A few years ago, Uber and Lyft left Austin, which in turn created a local, non-profit MVP rideshare app called RideAustin that worked OK. It wasn't perfect, but it covered the bare necessities of ridesharing fairly well.

The drivers I spoke with were pretty happy with RideAustin because they made more money than they had been using Uber and Lyft since RideAustin took a smaller cut.

When Uber and Lyft returned, they enticed drivers with rates that RideAustin couldn't keep up with. Within a few weeks, it became a lot harder to hail a ride through their app. And within a month, I couldn't get a ride consistently from my apartment in north Austin. If I wanted to get a ride, it had to be through Uber or Lyft.

Once they regained the market, they cut the rates to drivers, who have no rights to negotiate pricing since they're contractors. Rideshare drivers are essentially a captive labor force that must accept all conditions to work without really any say over what they're paid.

tomjakubowski2• 7 years ago

This counter argument is silly. Paying workers at a loss doesn't make it not exploitative. If the customer is charged $1 per unit and the employer pays workers (at an obvious loss) $2 per unit sold, that still says nothing about the worker's conditions, just that the company is subsidizing its losses somehow.

gridlockd8• 7 years ago

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.

save_ferris5• 7 years ago

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.

skybrian• 7 years ago

I'm not sure having input into government regulation would have helped as much as just having someone more knowledgeable look at the terms of the loan?

Maybe there should be a limit to how big a loan you can sign without getting some kind of legal help?

mattigames• 7 years ago

When a natural-person is involved a voice recording of a good summary of what you are agreeing with should be mandatory by _regulation_, there should be a notarized recorded statement saying something like "I Mohammed Hoque agree to pay 1.7 million dollars before 4 years from today [...]"

ordu• 7 years ago

There is an easier way. It is possible to shift balance of protection to the borrower. As an absurd example: allow borrower to deny his loan. The troubles with too big loans will end instantly, because lenders will think not just twice, but thrice and even ten times.

This absurd way is absurd, but lawmakers could make it gentlier in a reasonable way. Give a consumer more protection, shift more risks unto lender's side and viola, you need not to pay fees for a legal help, while system works much more reliable, because lender would pay from his own pocket for a stupid loan. Borrower mistanderstood terms of a loan and couldn't pay? So lets write off 90% of his debt, let him pay remaining 10%. Who is the dumb one now? Not the borrower who couldn't understand the terms of the loan, but a lender who hadn't bothered to make terms to be crystal clear to the borrower.

I'm not sure does it counts as a govermental regulation, I believe not, because government needs to tweak system a bit, and then system would regulate itself. In any case it is the easiest way. But lenders do not agree of course.

kjeetgill2• 7 years ago

The thing is, if you run the numbers cab drivers have made this investment and it has been a great investment for a long time. But on 10-20 year timelines who can account for way Uber/Lyft changed everything?

I'm not that familiar with the regulations and history around medallion systems, but I can see what the parent post is getting at:

Why does a taxi driver need to take out a loan/risk to work?

When I take a job, there's risk with options or shares maybe, but I don't incur literal debt to begin work. It's the legal framework around medallions and private contracting that even put that risk on individuals.

bko3• 7 years ago

finance industry just ran roughshod over them

I don't see how "the finance industry" hurt these drivers. These drivers were required to buy a license for up to $1mm for the right to drive people in taxis. Obviously that's a lot to put up, so banks lent them money to purchase it much like they do for people trying to finance houses, automobiles, boats, or any other high ticket item.

I wish the article would actually spell out the terms of the loans rather than relying so much on personal accounts of people involved. The author seems to take issue with interest only loans or long term loans, but mentions how the drivers can barely afford the payments. I don't see how they would be able to afford shorter term loans.

I imagine many drivers are going to rightly walk away from these loans, and considering many are interest only, the borrower is pretty much on the hook for the loss in value. The article does mention some fees or debt collectors but I believe they can just walk away and default. Might hurt their credit but its better than the alternative.

jazzkingrt• 7 years ago

I assume filing for bankruptcy means the lender gets to claim the medallion and sell it? That means losing potentially hundreds of thousands in payments already made, as well as the loss of any source of income. I think renting a medallion is possible at that point, but many of these medallion owners seem to have invested their life savings and could be nearing retirement.

Spooky233• 7 years ago

Whenever you have situations defined by some financial fuckery (or “innovation”), you end up with “unanticipated consequences” that your grandma could anticipate.

Anything can be collateralized, including things that don’t have stable value. In our quest to provide stimulus, fiscal policy has made capital so cheap that all sorts of dumb things are possible.

There’s no scenario where some dude off the boat from Pakistan or Haiti without assets should be able to borrow $1M for the right to drive a single cab. This story makes the exploitive and scummy Uber/Lyft business model seem ok in comparison.

tmh79• 7 years ago

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.

gridlockd8• 7 years ago

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.

What's happening isn't due to capitalism. It's all symptoms of monetary policy. Prices for real estate are driven up by cheap money, not just PE. Then, when the bubble pops, everyone gets a bailout by the nanny state. If the market shows sign of weakness, no more interest rate hikes. Risk has been eliminated.

The party has to go on at all costs, because if interest rates normalize, asset prices will tank, debt will become unservicable, mortgages will default, 401Ks will be wiped out...

ip26• 7 years ago

The sad part is capitalism can probably help solve these problems, but the professed "ardent free market capitalists" are too devoted to the religion to consider it. They conveniently ignore that unconscious people can't perform price discovery, forget that one of the core tenants of a functioning free market is free flow of pricing information, deny the very existence of externalities. Essentially, there is a list of conditions required for the invisible hand to function well, but they seem uninterested, even hostile, to attempting to establish those conditions.

I struggle to understand how they get so out of whack with even the very basics. Do they chose their preferred outcome and work backwards? Are they beholden/captured? Did deifying the free market close the door to tweaking markets to adjust outcomes (a deity is always right)?

pm904• 7 years ago

I struggle to understand how they get so out of whack with even the very basics. Do they chose their preferred outcome and work backwards? Are they beholden/captured? Did deifying the free market close the door to tweaking markets to adjust outcomes (a deity is always right)?

It isn't that surprising when you see that the people that usually espouse such views aren't doing it from a good faith perspective, or are simply hopelessly naive. The people that do benefit from such policies (namely the companies that benefit due to regulation) then fund these people, leading to narratives that are totally out of whack with reality.

Free market capitalism is great when you don't have control over a market and want a fair chance to take over it. Once you do control the market, it becomes your most dangerous foe (any group of smart enough people with enough seed capital and more efficient production has a chance of destroying the company you built over lifetimes).

omnivore• 7 years ago

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

klodolph• 7 years ago

Agreed… I live in NYC, and in general when I travel to other cities you can see how much better the food cart situation in other places (for example, if I travel, I often see food carts that are closed so the operators can take time off).

starik36• 7 years ago

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.

loeg• 7 years ago

It's a hard sale tactic even at $20, but seems especially obvious when asking for 1.67x your annual income.

akamaka• 7 years ago

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?

SilasX• 7 years ago

I think that’s a indicator of an illiquid market, where sales are so few and far between that sale prices are dominated by the specifics of the situation (eg if you can buy three at once, if you can buy that specific day, etc).

Like you might see in rare collectibles eg baseball cards.

Scoundreller2• 7 years ago

Could be money laundering. Or tax evasion of transfer taxes and/or capital gains taxes.

esotericn• 7 years ago

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.

taneq3• 7 years ago

This. The government artificially restricted supply, driving up demand, and then pulled the rug out from under taxi drivers by refusing to regulate ride hailing in a similar manner.

At least there are buybacks happening in some countries now to try and fix the whole mess: https://thewest.com.au/news/wa/government-to-introduce-taxi-...

kjeetgill2• 7 years ago

To temper this slightly, there are ways to artificially restrict supply without involving financial instruments. Just have a regular permitting/lisence system.

gruez• 7 years ago

then pulled the rug out from under taxi drivers by refusing to regulate ride hailing in a similar manner.

Did the government make any express guarantees that for-hire vehicles would be regulated like taxis? If not, I'm not sure how this is any different from any other type of regulatory risk.

At least there are buybacks happening in some countries now to try and fix the whole mess

That seems like the wrong solution to me. It's basically a scheme to socialize the losses.

tomjakubowski2• 7 years ago

That's right, they have cleverly avoiding taking on huge levels of debt by making their drivers do it instead - financed by Uber, of course!

icebraining2• 7 years ago

Comparing million dollar loans as mention in the article with a single car loan is a bit over the top.

financed by Uber, of course!

That ended in 2017.

cbanek• 7 years ago

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?

paxys• 7 years ago

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.

JumpCrisscross2• 7 years ago

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

dantillberg• 7 years ago

I think you mistyped the "88%". The quoted article says, "As of 2012, about 18% of all taxis were owner operated."

JumpCrisscross2• 7 years ago

you mistyped the "88%"

Correct; thank you—fixed.

matthewowen• 7 years ago

Although the article touches on "ride-sharing", it isn't really about that: the trigger could have been something else, and even without the drop in value these would have been predatory loans.

pm904• 7 years ago

From the article:

The medallion bubble burst in late 2014. Uber and Lyft may have hastened the crisis, but virtually all of the hundreds of industry veterans interviewed for this article, including many lenders, said inflated prices and risky lending practices would have caused a collapse even if ride-hailing had never been invented.

x0x0• 7 years ago

I still don't understand your numbers -- you currently say (630pm pst)

fewer than 88% [EDIT: 80%] of taxi medallions were owner operated

while the source for the wikipedia page [1] says

Only around 18 percent of cabs are owner-operated, putting most medallions in the hands of big taxi fleets or brokers who simply rent them out.

[1] https://web.archive.org/web/20120727153845/http://www.slate....

[1] https://web.archive.org/web/20120728173548/http://www.slate....

pm904• 7 years ago

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.

mattkrause2• 7 years ago

Oddly, Buzzfeed News also does some pretty in-depth reporting too. They were Pulitzer finalists (i.e. , runners up) in 2018 for reporting on Russian assassinations in the US and UK, and in 2017 for something about trade agreements(?).

pm904• 7 years ago

I think an apology is in order. They have a reputation for crass reporting on certain things, but have done some pretty great things otherwise. I guess I kinda bought into the meme of buzzfeed news not really being news.

Waterluvian• 7 years ago

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.

Causality1• 7 years ago

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.

patio11• 7 years ago

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.

lorenzk• 7 years ago

Relevant Michael Crighton quote:

https://www.goodreads.com/quotes/65213-briefly-stated-the-ge...

smudgymcscmudge• 7 years ago

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.

mindslight• 7 years ago

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.

cletus• 7 years ago

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.

cascom• 7 years ago

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

Reckless Loans Devastated a Generation of Taxi Drivers

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