Not too long ago, a New York taxi medallion was worth more than a million dollars. Gene Friedman managed to buy more than 1,000. But that was before Uber, and now people like Friedman face bankruptcy.
Listen to the full story by Planet Money.
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DAVID GREENE, HOST:
There used to be a guaranteed way to make a ton of money - buy a taxicab medallion. A medallion gives someone the right to drive a taxi in places like New York City and Chicago. They are rare and very valuable - or at least they used to be before services like Uber came along. Robert Smith, from our Planet Money podcast, has the story of what that has done to the taxi king of New York.
ROBERT SMITH, BYLINE: Every time Gene Friedman buys taxi medallions, he gives them these legal names.
GENE FRIEDMAN: Volcano taxi, we have Vic taxi. We have wrestler - Wrestler taxi. Why do I have Wrestler taxi?
SMITH: Because you used to wrestle.
FRIEDMAN: Kind of - I actually dated a female wrestler.
SMITH: The taxi names are the story of his life. He bought a lot of taxis, made a lot of money.
There's your cognac, your chardonnay, your Cuervo.
FRIEDMAN: Byblos, that's a hotel in Saint-Tropez, Armenia.
SMITH: Butterscotch, Butterfly, Brownie.
FRIEDMAN: Right, then we got into the sweets.
SMITH: There were good times and not so good times.
FRIEDMAN: We have Sondra taxi. Wow, that's - that's an interesting one.
SMITH: Is that someone you dated?
FRIEDMAN: That's my wife, who - we're going through a nasty divorce.
SMITH: Somewhere between the wrestler and the divorce, Friedman managed to assemble around a thousand taxi medallions, which is stunning. There are only around 13,000 medallions in the entire city of New York. To own one is to own part of this incredibly valuable monopoly. At one point a couple years ago, medallions were selling for $1.2 million apiece, which meant at one point, Friedman controlled a billion dollars' worth of taxi.
FRIEDMAN: This is my hub. This is where new cabs are born and old cabs come to die.
SMITH: Friedman had this insight back in the 1990s. His father owned eight taxi medallions, which was big at the time. And Friedman said to his dad, hey, if we could get cheap loans from the banks, we could get even more medallions.
FRIEDMAN: No, I mean, what he says - he says, you're an idiot. He says, you don't know what you're talking about. This is not the way things are done. This is not what you want to do.
SMITH: But Friedman did it anyway. He borrowed money, bought taxi medallions, and then when the price went up, he used the medallions as collateral to get even more loans, even more medallions. That's why the price went up to $1.2 million. And no one really blinked. Taxicabs are these little yellow machines that basically print money. The manager of the garage, Joe Carastinovek, walks me through it. Each cab is rented out to a team of drivers. One driver gets out; the next one gets in.
So they get used to each other's smells.
JOE CARASTINOVEK: Oh, yeah. Oh, they do, yeah. They know everything - you know, easy.
SMITH: The seat's always warm.
CARASTINOVEK: Correct, correct.
SMITH: And for the pleasure of that warm seat, the drivers pay Friedman up to $125 a day. That means a medallion could generate $45,000 a year in rent. As long as Friedman gets more out of the cab than he has to fork over to pay his loans, he's good. And he was good, until Uber. At first, Friedman argued that Uber and taxis were really going after different customers.
FRIEDMAN: Uber is the 1 percenters, right? I'm interested in moving New Yorkers around.
SMITH: And what did he need to worry about? Friedman makes his money from drivers renting his cabs. Even with Uber, he is still bringing in a lot of money. What's gone terribly wrong is the other side of the equation - the cheap loans. Bankers are nervous about Uber and they've started to say no.
FRIEDMAN: And these are guys that are extremely good friends of mine. These are the guys that have made me. Financing and bankers have made me who I am. But you know what? The banks stopped financing. The liquidity has dried up.
SMITH: Remember the housing bubble a few years ago? The exact same thing is happening now with those million-dollar taxi medallions. Almost no one is buying or selling. And the few that were sold recently were at a big discount. The banks are freaking out. Citibank is in court right now trying to foreclose on 46 of Friedman's medallions. And he's responded by filing bankruptcy on the legal entities that control those medallions. It's a huge mess, which is why you see the taxi industry trying to get cities to limit Uber. Friedman himself has argued that the New York taxi companies are too big to fail.
FRIEDMAN: New Yorkers have a vested interest in yellow taxi cabs in New York.
SMITH: But so far, it's like any bubble. When the prices are going up, everybody wants in. When the bubble pops, you are on your own. Robert Smith, NPR News, New York. Transcript provided by NPR, Copyright NPR.