Rough Ride

New York Taxi Mogul, Seeking a Bailout, Says He’s Too Big to Fail

One of New York City’s largest taxi fleet owners is asking for a bailout.

Evgeny Freidman, known as Gene, said in an interview Thursday that the taxi industry, like the financial industry, was too big to fail. He would like the city to guarantee taxi medallion loans, which would induce banks to extend more credit to fleet owners like him, and he compares this approach to the federal government’s actions to save large banks and insurers in 2008.

“I still see Bernanke saying, ‘I hate A.I.G.; I don’t want to give them any more money, but I have to,’ ” he said, referring to the former Federal Reserve chairman Ben Bernanke and the large insurer that was bailed out in 2008.

Mr. Freidman’s problem is not unlike that of any homeowner who bought real estate in the early part of the century thinking prices could only go up. In New York, medallions, the license that is required to operate a yellow taxi, are fixed in number, and their price rose for decades because of increased demand and restricted supply.

Prices peaked in 2013, not just in New York but also in other large markets like Boston and Chicago. Prices have declined as taxis have faced competition from car service apps like Uber. At the top, the price for New York mini-fleet medallions, which may be owned by nondrivers, was over $1.2 million.

Medallions have typically been financed with debt, but creditors have become skittish because of falling prices. The lack of access to credit has caused medallion sales to slow to a trickle as buyers have faced great difficulty finding financing; this has also made it difficult for medallion owners facing loan maturities to sell.

Brett Berman, a lawyer for Mr. Freidman, issued a six-page letter on Thursday with a warning to creditors, city officials and other “stakeholders” in the taxi industry: “Should you fail to act and permit or contribute to Mr. Freidman’s failure, such action or inaction will have an effect on the medallion industry across the country.”

Mr. Freidman is currently locked in litigation with Citibank, which is trying to seize 87 of his medallions after certain loans matured. Ronn Torossian, Mr. Freidman’s spokesman, declined to say exactly how many New York medallions Mr. Freidman owns. According to the letter, entities related to Mr. Freidman control one-sixth of New York’s mini-fleet taxi medallions, which would mean approximately 1,000 of them. They would be worth around a billion dollars even after recent price declines.

Mr. Freidman said the disruption from sharply falling medallion prices and seized-up credit markets would hurt governments, which collect revenue from taxes on medallion sales and taxi fares. He said it would also harm riders, with taxis being taken out of circulation as their medallions were foreclosed on. He contends that the whole situation is “artificial” and that government intervention to prop up the lending market would cause prices to return to “normal.” Government guarantees for owners like him might allow him to maintain the value of his assets and continue to produce revenue from them.

CreditSasha Maslov

Of course, there are a few problems with his argument. The first is that there was nothing “normal” about a New York taxi medallion costing more than a million dollars. Before medallion prices started falling in 2013, they more than quadrupled in a decade.

Sometimes, a normally stable market is rocked by a liquidity crisis, and the government can calm the waters by offering guarantees that induce people to lend. In this case, there is no reason to believe the million dollar medallion that existed pre-crisis was a stable condition. If New York City guaranteed medallion loans and the prices kept falling anyway, the city could lose a lot of money — and taxpayers would end up paying the banks.

It is also easy to identify non-“artificial” drivers of the medallion price declines. A medallion’s value is determined by the expectation of future taxi revenue. The real income generated by medallions is affected by competition from Uber, and also by the expansion of the city’s green cab program, which created a new class of vehicles that picks up street-hailing passengers outside Manhattan.

As Mr. Freidman himself noted, he is no longer able to charge the city’s legal maximum lease rate for yellow cabs because fewer people are interested in driving them; this is a fundamental reason prices are declining. There are also future risks. Medallion values could be further impaired by economic changes outside the control of New York City, such as rising interest rates. Another reason medallions gained so much value in recent years was that record-low interest rates made them cheap to finance.

Most important, medallion owners are not actually too big to fail. There have been a handful of foreclosure sales of medallions over the last six months. If many more medallions are foreclosed upon and held on bank balance sheets, they could still be leased to drivers under bank ownership.

In other words, a crisis in the financial economy around the taxi industry need not necessarily lead to an actual shortage of taxis. In this case, the situation is not like houses, where a credit crunch can lead to cessation of home construction and the neglect of vacant, foreclosed homes. Also cutting against the likelihood of a cab shortage: the existence of Uber, which is a close substitute for yellow taxis.

Still, Mr. Freidman contends medallion owners deserve a government backstop because of financial support they have provided New York City by buying medallions at auction.

“I have delivered, personally, in excess of $300 million to the city in these auctions,” he said. “Do I not have a little bit of standing to say there should be support from that institution that I delivered, personally, $300 million to? To do what the government does for every other industry? Am I not being logical?”

The Committee for Taxi Safety, a trade association that represents many New York City taxi medallion owners (but not Mr. Freidman), declined to comment on his letter. The Taxi and Limousine Commission did not respond to a request for comment by press time.
