'Medallion' Bubble Burts Around The World

Tyler Durden's picture

Submitted by Mike Shedlock via MishTalk.com,

If you are in the taxi-driving business and paid a lot of money for a medallion or license, sell it while you still can, if you still can.

In Melbourne Australia, Taxi Reform and reduced costs of licenses have some drivers worried they will lose everything.

taxi-australia

 

Sandy Spanos is only 58, but now she could lose her house and be unable to pay for treatment for her cancer, which she was diagnosed with two years ago because the reform will leave her and her husband in hundreds of thousands of dollars of debt.

 

Mrs. Spanos invested in three taxi licenses so she could enter retirement comfortably with a good superannuation, but she said it has all been ripped from her.

 

“What did I do wrong?” She asked news.com.au.

 

The Victorian government wants to deregulate the taxi industry by abolishing taxi licenses and introducing a single registration for taxis, hire cars and ride-share services like Uber.

 

Taxi licenses cost cabbies $500,000 and it’s seen as an investment that will later help fund retirement.

 

The government now wants to buy back these licenses and has proposed to compensate taxi license holders by paying $100,000 for their first license and $50,000 for up to three others. Mrs. Spanos has three licenses, meaning she would receive $200,000, but she still has a loan of $300,000 she needs to pay back to the bank.

 

Her husband drives taxis but she said he was losing income.

 

“I can’t pay the bank back. I’ve still got bank loans and my husband’s income has almost decimated and my assets are being seized and I’m going to lose my house,” she said.

 

The Victorian government has previously said introducing new licensing requirements would put passengers first and create a level playing field for all industry participants.

 

“This will drive greater consumer choice, better service, and will place downward pressure on fares,” the government said.

 

The government claims it will be cheaper to now operate a taxi or hire car as the annual licence fee of $23,000 will be axed.

taxi-australia2

“What did I do wrong?”

  1. You paid $500,000 for each of three licenses
  2. You put all of your money in one basket
  3. You filed to assess Uber and other possibilities
  4. You borrowed money for a business that one should have seen issues with a long time ago.

Investing in taxis now is like investing in the film printing business 15 years ago, just as digital was about to replace film.

Chicago Taxi Medallions

In Chicago, There are 6,900 medallions.  Those Cab Medallions Were Once Worth $360K.

The above link is from October of 2015. Twelve licenses sold then for an average of $240,000. 74 owners are in bankruptcy.

On May 11, 2016,  Chicago Tonight reported Aldermen Propose Taxi Medallion Buyback

Mayor Rahm Emanuel said the emergence of the ride-share industry has been a net benefit for the city.

 

“They provide jobs to people that didn’t have a chance to have jobs before, and they provide service to neighborhoods that never had service before,” Emanuel said. “We all know that the taxi industry never serviced the South and West Sides before. Not only does rideshare serve the South and West Sides, they’re opening offices there.”

 

But he says he will support efforts to level the playing field between the older taxi companies and newer ride-share operators.

The value of a medallion is now $40,000 if you can find a buyer. There will likely be a buyback proposal. Perhaps it will be very similar to the one in Australia.

Medallion Bubble Bursts

On August 16, 2016, Fox News asked Are taxi medallions too big to fail, too?

The medallion crash is providing an abject lesson in the folly of central planning. Thanks to this artificial scarcity created by the government, in 2013 all taxi medallions and related assets were worth $2.5 billion in Chicago and $16.6 billion in New York City, according to Medallion Financial, a publicly traded company that specializes in financing taxi medallions. (Tellingly, its CEO, Andrew Murstein, once called taxis “little cash cows.”)

 

Now those cash cows are getting gored by Uber and Lyft. Uber estimates it now has nearly 35,000 monthly drivers in Chicago, almost triple the number of active taxi chauffeur licenses in the city. In Manhattan’s core, Uber gained 3.82 million pickups, while yellow taxis lost 3.83 million rides. Uber also expanded its pickups in the outer boroughs, leading to dramatic service increases in Brooklyn and Queens.

 

Increased competition is even benefiting those who continue to hail cabs. Research presented at the American Economic Association found that ride-hailing has “encouraged taxis to improve their own service in response to the new competition.”

 

Amid this freer marketplace, the taxi industry is facing serious disruptions. Last year, the average price for a medallion in Chicago was less than $230,000, a drop of 30 percent from the previous year. Several medallions went for as low as $150,000. Boston saw the average price for its medallions fall by 40 percent last year. In New York City, an individual taxi medallion once surpassed $1 million in 2014. But by March, medallion value had plunged 45 percent, as Medallion Financial revealed in SEC filings.

 

But many in the taxi industry refuse to adapt and instead have filed lawsuit to defend what remains of their cartel. After losing in New York state court, two associations that say they represent roughly 4,000 medallion owners sued New York City and its Taxi and Limousine Commission in federal court. The taxi lobby in Miami-Dade County, Fla. even filed a class-action lawsuit seeking $1 billion in damages for “significantly devalued” medallions in May.

 

In Chicago, the Illinois Transportation Trade Association, a group composed almost entirely of medallion owners and corporate affiliates, took the city to court, demanding “just compensation” for lost medallion value under the Fifth Amendment — the same constitutional provision intended to recompense property owners affected by eminent domain.

 

Competition is not theft. On behalf of rideshare drivers, the Institute for Justice, a public interest law firm, intervened in the case. Last September, a federal court dismissed the Association’s taking claim, though that ruling was appealed in May.

It’s hard to fathom a license going for $1 million in 2014. Mercy.

This is only the initial wave of the disruption. The drivers will vanish as well.

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YouJustMadeTheList's picture
YouJustMadeTheList (not verified) Feb 16, 2017 2:18 PM

Johnny Cab bitchez!

SenselessPanic's picture

there's a sucker born every minute -- most are foreigners

Manthong's picture

I heard that Rahm the Great Gun Controller of Chiraq has a chunk of Uber.

Taxi drivers there should be even more worried.

I wonder how many on the City Council own a chunk as well….

 

Medallions were a scam from the git-go anyway.

NoDebt's picture

“What did I do wrong?”

  1. You paid $500,000 for each of three licenses
  2. You put all of your money in one basket
  3. You filed to assess Uber and other possibilities
  4. You borrowed money for a business that one should have seen issues with a long time ago.

 

Lady, I got bad news for you.  You are the greater fool.

exi1ed0ne's picture

lol.  Protectionism sucks when it isn't you being protected.

Offthebeach's picture

The snowflakes of New York city have like 2,000 different building zones.  Imagine if they were liberated?  Rents would drop, supply jump.  But gove hacks, weasel crony "owners" and lenders on existing notes would be scream.

Stuck on Zero's picture

Get out of taxi medallions now. Tulips are the place to be.

anarchitect's picture

It's only fair that the licenses should be bought back--by a fund created by seizing assets of the politicians who voted for them in the first place.

exi1ed0ne's picture

Artificial scarcity (or abundance - depends on which side you're on) is artificial and will always collapse.  Was is wrong to constrict (or boost) the market?  You bet.  Is it right to take from my pocket via taxes to compensate people who were taking advantage of governmrnt interference - which in turn caused every one who used the service to pay more?  Nope, and you seriously need to check your ethics if you think that's OK.  That same logic needs to get applied to a lot of things government has their hands in.

Confiscate the legislators assets - don't make me laugh.  Might as well confiscate assets from everyone that profited from it.  Good luck with that.

anarchitect's picture

I never suggested using your taxes, and I agree that it's unethical.

We know the politicians' assets won't be attached to pay for this.  But if they were finally held accountable for their interventions, maybe their meddling would end.

exi1ed0ne's picture

Accountable to whom?  It looks like they were perfectly accountable to the Cabbie Union, and the people making bank off of the medallion trade.  The best government would have to be NO government, since it's entire purpose is to pick winners and losers via rule creation.

Billy the Poet's picture

Isn't the Medallion cartel run by Colombian drug lords?

vato poco's picture

understandable that there would be confusion, since they're all exactly alike. Pro Tip: the Colombians wear better suits.

BarkingCat's picture

Close...Worse

City Hall.

 

FIFY

 

(Close is supposed to be crossed out, but for some reason formatting is not working..at least on my tablet)

Raffie's picture

Time to liquidate and move to a cheaper country.

LYFT it is.

Withdrawn Sanction's picture

What she did wrong was to try to use government force to extract unearned compensation from her passengers.  All cartels eventually fail either from competitive forces from outside (as in the taxi case) or cheating from the inside.  I wonder if her cancer and her willingess to cheat others are somehow related. 

Jim in MN's picture
I think this looks better....

 

 

'Medallion' Bubble Butts Around The World
Socratic Dog's picture

Her problem?  She believed in the system.  Central Planning, as the article says.  And like any good sheep, she got shorn.

I'm less and less inclined to feel any sympathy for those unable to question s clearly corrupt and failing system.

goddammoron's picture

So the Mayor's fortune here is aligned with the people of Chicago.  All good.

Chicago is absolutely fine (maybe some debt issues).  Don't worry your little Trumptard brains about it over and above what you believe on your TMZ/ZH feeds.  Don't investigate life for yourself, i.e. put your food dehydrator on Auto, burry your 2.5 rolls of S. Eagles and leave your bunker for anything not internet or range related.

Trumptards = Libtards.

MagicHandPuppet's picture

"What did I do wrong?"

You gambled your well-being on a goobermint license scheme meant to stifle the free market, enforcing a barrier to market using coercion.  May the free market win, and may you find your free market advantage so you stop whining.

GunnerySgtHartman's picture

Moral of this story: don't be the bagholder.

SilverRoofer's picture

So I should feel so sorry for those that invested in that business?

What about in my line of work why don't anyone feel sorry for me and my family we are 4 generation roofing company competing for business with ILLEAGLE Aliens who pay no insurance,No License,ECT ECT ECT .

Everyone is dealing with problems your problems don't institute a BAIL OUT or any one who can show a hardship will be entitled to one.

Colonel Walter E Kurtz's picture

There with you roofer. In a similar line of work and trying to compete with that nonsense is infuriating. And all gubmint does is create more regulations that only those trying to play by the rules find themselves suffocating under (i.e. - will mandatory E-verify work when the competition is already cheating?). We are probably at the point in time where removing 80% of rules/regulations would allow us to better compete. Workers and customers in a free market will gravitate to those that are honest and reliable, when the cost advantage enjoyed by the dishonest, is drastically reduced.

Keep up the fight and hope you have better days ahead!

shizzledizzle's picture

How DARE they devalue my tulip bulbs!

Spungo's picture

That's not an accurate comparison. A taxi medallion is a real asset that allows a person to operate a business. This would be equivalent to spending 8 years of your life in university to get some kind of medical certification, and then the government declares that the education you have is totally worthless and you'll need to start over from scratch. You would be pretty pissed off if the government flipped a switch and essentially bankrupted you.

Withdrawn Sanction's picture

The government didn't bankrupt her (they were active participants in her rent-seeking scheme).  Her (former) passengers who opted instead for Uber or Lyft bankrupted her. 

Spungo's picture

But the government changed the rules after the game already started. Uber and Lyft are illegal taxi services. The people doing the driving for those services do not have a drivers license for carrying paid passengers, the vehicles generally do not have insurance for carrying paid passengers, and the vehicles do not have taxi licenses. The people who have the licenses assumed the government would follow its own laws and enforce overbearing regulations. Instead, the government turned around and changed the rules to make the illegal taxi services legal. The licensed taxi people have legitimate legal claims because a change of rules renders them insolvent.

I'll use an example of something I'm familiar with. Up in Alberta, Canada, they decided to get rid of coal power by 2030. Did the government change the rules and force investors from around the world to have billions of dollars worth of "stranded" capital? Of course not. The government bought them out. The government changed the rules in a way that makes them obsolete, so the government must compensate the investors. Not compensating investors is how you get shit like Venezuela. No sane person would invest in that country because there's always a possibility that government will changes the rules or just take your business.

GunnerySgtHartman's picture

So are you saying that when the government "changes the rules," it is the responsibility of the public to pay off anyone who may lose money?  Is that good public policy?  Does that not constitute a form of private profits and socialized losses, the exact issue we ran into with the moneycenter bank bailouts and the GM/Chrysler bailouts?

Spungo's picture

If you want to repeatedly burn investors, you'll find yourself in a situation where nobody is willing to invest. The profits would need to be high enough to account for the added political risk. That's how you end up with things like government operated utilities and government operated infrastructure. After every private investors has been chased away, the only investor left is government.

SomethingSomethingDarkSide's picture

You live in a Socialist society and are experiencing the Socialist consequences - that's what you did wrong, honey.  Ramming expensive shit down people's throats eventually, shockingly, leads to less demand for said bullshit item.

BarkingCat's picture

They can fix this. You just have to think like a statist control freak.

What you do is you create a government fee, on private non-business use cars, that is based on how many kilometers are driven annually. 

If you set that fee high enough, people will drive less and use the taxi service more.

 

Unintended consequences of that scheme you say??  We can worry about those later. Hurry, write that legislation and pass it quick....because we have to pass it to see what's in it...and if you like your car, you can keep your car...in your garage because you will not be able to afford to drive it.

SomethingSomethingDarkSide's picture

So basically, Carbon Tax? Lol, how terribly realistic.

Umh's picture

Does anyone else see a problem with this, "they provide service to neighborhoods that never had service before"?

spastic_colon's picture

like i said.....starting a fund to buy up all the crappy medallion paper; then requesting banking status; then blowing up the fund; then collecting taxpayer baliout money; then starting a fund to buy up all the crappy medallion paper.............

StackShinyStuff's picture

What is a super-senior triple A tranche of Goldman's latest TAXI MEDALLION ABS paying right now?  It's AAA.  It CAN'T LOSE.  Probably still trading at par.  

darteaus's picture

A little late on this advice.

Moe Howard's picture

The big problemo was that the medallion program was an illegal cartel, price fixing and removing competition. I lived on the SW side of Chicago back in the day, it was impossible to get a cab from the northside to the southside. Totally bullshit.

 

Good job uber and lyft.

pherron2's picture

It's a beautiful thing. MOAR UBER PLEASE!!! Uber Medic, Uber Finance, Uber Media...

detached.amusement's picture

so basically like banks are with money

moorewasthebestbond's picture

This story has been batted around like a $2 whore for the longest time.

 

Can we give it a rest?

ToSoft4Truth's picture

Snowflake Carrier staff were saved by tax breaks...  why shouldn't Snowflake taxi drivers be saved?  The yellow taxi is Americana. 

Sliced into ribbons's picture

Too big to hail. Get it? Because they're taxis?

Phat Stax's picture

Medallions peaked in NYC in 2008 @ $1.3mm, they had doubled in value in about 2-3 years.  Now... ?

adr's picture

Like every bubble, suckers bought in thinking their worthless trinket would be worth xxx times what they paid for it. 

$1 million for a taxi medallion, chump change if it's worth $10 million two years later. That is what the medallion speculators were claiming. All the while the middlemen traders were making out big. 

In bubblenomics, the last man holding the bag loses all. 

The idea that the permit to operate a business went to $1 million is what is absurd. 

As for the Aussie bitch,  you were an imbecile thinking taxi medallions were your ticket to living easy on the beach. You get what you get. The upside is there is a pretty large online fetish following for fat hairy Aussie chicks. You can always webcam and make $15k a month from your home computer. 

IridiumRebel's picture

500k to drive a cab? No red fucking flags went up?

BSHJ's picture
'Medallion' Bubble Burts Around The World

What I am worried about is the day when the bubble BURSTS