ROBERT SMITH, HOST:
If you own one of those yellow taxicabs in New York, the most valuable thing about it is not the car itself, whatever it is. No, it is this little metal shield bolted to the hood. It's about the size of your hand. And it's called a taxi medallion.
VANEK SMITH, HOST:
And if you want to operate a cab in New York City, you have to have one of these medallions, which makes them kind of these rare, precious objects.
SMITH: Yeah because the city controls the number. There are only about 13,000 taxi medallions in existence. And because of this rarity, not too long ago taxi medallions were selling for $1.2 million each.
VANEK SMITH: Gene Freidman owns a surprising number of them. And he invited us out to his garage in Queens to take a look.
GENE FREIDMAN: I live these. I breathe these. I remember when I got these, how I got these.
SMITH: This cab right here, it's 9V62. That tells you a story?
FREIDMAN: It does tell me a story.
SMITH: Freidman has a lot of stories because he's got a lot of medallions - so many medallions, he's given them all names just to keep them straight.
VANEK SMITH: You can see the names on legal documents for all of these little holding companies. And they are stacked in binders all over the garage.
FREIDMAN: Volcano taxi. We have Vic taxi. We have Wrestler taxi. Why do I have Wrestler taxi?
SMITH: Because you used to wrestle?
FREIDMAN: Kind of - I actually dated a female wrestler.
SMITH: Yeah, every name reminds him of where he was in his life when he bought it. So for instance, he had a son, named a taxi medallion after him - Dylan taxi.
VANEK SMITH: And as he expanded his fleet, he started to make a lot of money. And you can actually tell that by looking at the taxi names.
SMITH: There's your Cognac, your Chardonnay, your Cuervo.
FREIDMAN: Byblos, that's a hotel in Saint-Tropez, Armenia.
SMITH: Butterscotch, Butterfly, Brownie.
FREIDMAN: Right. Then we got into the sweets.
SMITH: Good times, not so good times.
FREIDMAN: We have Sondra taxi. Wow, that's an interesting one.
SMITH: Is that someone you dated?
FREIDMAN: That's my wife, who - we're going through a nasty divorce. So we're going to - we have Saint-Tropez taxi.
SMITH: Freidman has been remarkably successful at buying up these rare, precious things, these taxi medallions. He controls over a thousand taxi medallions, which not too long ago altogether were worth over a billion dollars.
VANEK SMITH: But the taxi business is, of course, changing a lot right now. You used to have to wait for a cab in New York. You'd have to run out and hail it.
SMITH: Yeah, I was terrible at it. There's a definite art to getting the cabs.
VANEK SMITH: The first time I successfully hailed a cab, I felt like a real New Yorker. But now all I do is pull out my phone and go to Uber or Lyft and, lo and behold, some guy in Honda shows up a couple minutes later to take me wherever I want to go.
SMITH: And because of that guy, the value of the old-fashioned taxi medallions is plummeting. If you're Gene Freidman, owner of a thousand of them, this is a real problem.
(SOUNDBITE OF MUSIC)
VANEK SMITH: Hello, and welcome to PLANET MONEY. I'm Stacey Vanek Smith.
SMITH: And I'm Robert Smith. Today on the show, the rise and the fall of the taxi medallion king.
VANEK SMITH: Did he really fall?
SMITH: You know, it's not looking good. I'm going to be honest with you. But this is really the story of what happens when something you own is suddenly worth a lot less.
(SOUNDBITE OF MUSIC)
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SMITH: Gene Freidman never wanted to be known as the taxi guy. He is my age. He's in his mid-40s. But he is trying to dress hipper and younger. He has tight jeans and purple sunglasses. And he's trying to grow a stubble beard. That's what his girlfriend's making him do right now.
VANEK SMITH: Taxis were always his dad's thing, until his dad got sick back in the '90s.
FREIDMAN: He was a horrible two-pack-a-day smoker back then. And he had a heart attack.
SMITH: His dad owned eight taxi medallions in New York, which back then was pretty impressive.
Do you remember any of the numbers of his?
FREIDMAN: Oh, yeah, yeah, of course.
SMITH: Name me one number.
FREIDMAN: 2137, 2138, 6N60, 6667 (ph), 6KOI (ph) , OI6K (ph), 7374, 4P97, 4P98. Those are his medallions, yeah. So...
SMITH: Those are the family jewels.
FREIDMAN: Those are the family jewels.
VANEK SMITH: Freidman grew up in New York but was working in Russia at the time. He was a high finance guy. And when he heard about his dad's heart attack, he rushed back to New York to the hospital.
SMITH: Now, I imagine it was one of those classic movie-like scenes. You know, the father in the hospital bed, pointing outside to his taxis and saying, son, son, this could all be yours.
VANEK SMITH: But the thing is, Freidman didn't want it to all be his. He sort of thought of taxis as this grubby business.
FREIDMAN: They were dirty. They were smelly. They were small.
VANEK SMITH: And more than that, cabs back in those days were run like a mom and pop business. You'd save up money to buy a cab or get a small business loan and buy a couple or a few. This was the way Freidman's dad did business.
SMITH: But the son, Gene Freidman, he was a finance guy. And he thought, wait a minute - the medallions, the medallions. If you buy a medallion, you are basically buying part of a monopoly. Medallions are scarce. The city isn't making any more of them. Medallions are like gold or real estate.
VANEK SMITH: And yes, they're expensive. This Freidman knew bankers. He knew he could get big loans - and interest-only loans with super low rates. And he told his father, you could use this borrowed money to get more and more and more taxi medallions. What could go wrong? Although, his dad had a pretty good idea of what could go wrong.
FREIDMAN: 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: And yet, it was exactly what Freidman wanted to do. He borrowed money. He bought medallions. And then, he borrowed more money, and he bought more medallions. And then when the price went up, he used those medallions as collateral to get even more loans and more medallions.
VANEK SMITH: He was basically doing what Lehman Brothers and other people on Wall Street did right before the financial crash, borrowing massive amounts of money to buy assets that they believed could only go up. He was a one-man medallion hedge fund.
SMITH: He could not get enough medallions. And he didn't just bid for them; he bragged about over-bidding for them. If the last medallion in some sort of blind auction went for, like, $100,000, he'd go up to $110,000. The other guy pays 400 K; he'd pay 450.
VANEK SMITH: And that is when he started naming them after whatever he was drinking at the time or his favorite vacation spot or his current lady friend.
SMITH: He bought garages for his taxis, gas stations to keep them fueled, a whole infrastructure.
(GARAGE DOOR OPENING)
FREIDMAN: This is my hub. This is where - where new cabs are born and old cabs come to die.
SMITH: He shows us around his garage. And inside are guys fixing meters, pulling stickers off old taxis, putting on new ones, piles of yellow parts everywhere for his taxicabs.
UNIDENTIFIED MAN #1: (Foreign language spoken).
SMITH: The secret, Freidman says, is to make sure that he never sees a medallion taxi just sitting around in the garage - because then it's not out on the street. It's not making money. And when he spots one, he asks, hey, why is this here?
FREIDMAN: Hey, 421, what's he here for?
UNIDENTIFIED MAN #2: Got a meter issue.
FREIDMAN: Meter issue, then he's going to work?
SMITH: Yeah, he's going to go to work.
VANEK SMITH: So when I first heard how much people were paying for a taxi medallion - more than a million dollars - I thought that this can't possibly work financially. How can one taxicab pull in enough money to pay off a million dollars? It doesn't seem right.
SMITH: It does not seem right. And yet, the manager of the garage walks me through it. Joe Carastinovek says it is all about generating a steady income. Freidman rents all of his cabs by the day or by the week to teams of drivers. One guy takes the day shift. One guy takes the night shift. One driver gets out; the next one gets in.
So they get used to each other's smells.
JOE CARASTINOVEK: Oh, yeah, they know everything - you know, easy.
SMITH: The seat's always warm.
CARASTINOVEK: Correct, correct.
SMITH: The drivers pay a set amount of money to Gene Freidman. Whether they get a great fare to the airport or whether nobody hailed them down the whole shift, it does not matter how many people get into their cab because the drivers pay the same rent every time.
FREIDMAN: Depends on what car you get - anywhere between 100 and 125.
SMITH: For the whole day?
FREIDMAN: For the whole day, 24 hours.
SMITH: You can make money, right?
FREIDMAN: Usually, average taxi driver will come home between 200 and 300 a day.
SMITH: You know, I like to think of cabs as these little yellow machines that just spit out money all day long - $125 a day, $45,000 a year per cab, like clockwork. And as long as that income coming off that cab is more than Freidman has to fork over to pay off the medallion loans, he's good. He's making a profit.
VANEK SMITH: This is why finance is so important because if you can get a cheap loan to buy a taxi medallion, as long as you're paying a low interest rate, you will make a profit. It's like getting a cheap mortgage for an apartment building. As long as you have renters paying every month, you're good.
SMITH: Freidman basically built a taxicab empire. He started to buy cabs in Chicago and Boston and Philly.
VANEK SMITH: People started referring to him as the Taxi King. So this is clearly the rise.
SMITH: This is the rise, yes.
VANEK SMITH: So I imagine that means we are close to the fall?
SMITH: Which is, of course, why we came to see Gene Freidman. And, you know, we always talk about bubbles popping. That's what they say, right? But when you're actually looking at it happening, it's not always the way it works. With the taxi industry, it's less of a pop and more of this slow crumble. The first crack, the first crack is Uber shows up in New York City a few years ago. Freidman, he tried to show that he wasn't so worried about it, that it was no big deal.
FREIDMAN: You know what? There's nobody that's a bigger fan of Uber than I am. And I always say, you know, if they're worth $50 billion and somebody can recognize that, you know what? I don't know, maybe I'm worth something also.
VANEK SMITH: Yeah, I don't think he's really that big of a fan of Uber.
SMITH: Yeah, he's trying to show a sort of bravado in the face of adversity. And in fact, as I talked to him longer and longer, he would just keep putting these little jabs at Uber. He'd be like, you know, Uber's just for the 1 percent; taxicabs are for the people. And, you know, call an Uber, you don't know if it's going to show up. You don't know how much they're going to charge. So he loved to do these little digs because clearly Uber bugs him. It bugs him that there are customers who prefer calling an Uber to sitting in one of his yellow taxicabs.
VANEK SMITH: But the real problem for Freidman with Uber is actually not about the customers. It's about the drivers, the guys who rent the taxicabs from Freidman. That is how he makes all of his money. And those guys have been going over to Uber too. So Freidman's had to start lowering the fee he charges every day to rent out his taxicabs. And that means less money coming in.
SMITH: Even that, Freidman says, he can live without. He can make a little less on the drivers. He could maybe, in some perfect world, coexist with Uber. But the thing that might just kill him is the thing that helped build his business, the financing, the banks.
VANEK SMITH: The banks. Those cheap loans that Freidman took out, those are coming due. And suddenly the banks are getting nervous. The same people who gave Freidman a bunch of money over the years are saying, hey, maybe we shouldn't give you any money anymore.
FREIDMAN: The financing isn't there. The financing isn't there because you have a bunch of stale bankers, right? 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.
VANEK SMITH: You can understand where the banks are coming from. They were lending Freidman money based on the rarity of the taxi medallions, those precious taxi medallions. But now if you can operate something that works pretty much exactly like a taxi without a medallion, the banks are figuring that these medallions are not worth as much as they used to be.
SMITH: You know, Stacey, as I was listening to Gene Freidman's woes, I just kept flashing back to the financial crisis, to the housing bubble collapse - because he talked about the same sort of things. You know, it's all about the value of the medallions. Nobody knows what the value of the medallions are because remember, he used to have a billion dollars' worth of medallions, when they sold for a million each. But now nobody wants to buy; nobody wants to sell. The market for medallions has shut down. And the few that have changed hands have done so for something like $800,000, which is way below what Freidman paid for them.
VANEK SMITH: And just like happened in the housing crisis, the banks are starting to foreclose on the taxi medallions. In fact, Citibank is in court right now trying to foreclose on 46 of Freidman's medallions. They have names like Hypnotic taxi and Bombshell taxi.
SMITH: He's always got a clever name, even when he's in trouble.
VANEK SMITH: (Laughter) And Freidman has responded by filing bankruptcy on just the legal entities that own the medallions. It's getting really messy.
SMITH: So perhaps with this parallel to the financial crisis, it is not surprising what Freidman did this spring. He basically said the taxi industry is too big to fail. And he publicly proposed that perhaps the city of New York should bail out its yellow cab industry. He said, basically, we were promised a monopoly. We were promised regulations. And the city of New York hasn't protected that. And so his suggestion was, you know, maybe the city could guarantee the loans he needs. Maybe the city could help the money start flowing again.
FREIDMAN: We want out franchisor, our poppa, our mama, our big brother...
SMITH: The city of New York.
FREIDMAN: The city of New York interested in us, having a vested interest in us moving forward and doing what we need to do.
SMITH: It's just - it's a little bit hard for taxpayers who had a hard time perhaps swallowing some of the support of the banking industry during their crisis - but supporting the taxi industry might be too far for some people.
FREIDMAN: But it's not supporting - but it's supporting - listen to me. New Yorkers have a vested interest in yellow taxicabs in New York. You need taxicabs picking people up at the airport, moving tourists around.
SMITH: But do you? I mean, do you really need taxicabs? Uber is creeping in everywhere. And in fact, there was a move in the New York City Council to try and cap the number of Ubers in New York, and it just failed spectacularly. Even Freidman's ex-wife, she uses Uber.
VANEK SMITH: Of course she uses Uber (laughter).
SMITH: I know this because his 11-year-old son showed up at the very beginning of the interview.
FREIDMAN: You know, I know he's my kid because he just came over here in a cab. I think it was 5N56. And his mother said, you need to take an Uber because I feel more comfortable. And he said, I'm not getting into an Uber because it's a family business. I'm taking a yellow cab. So that's how I know he's my kid.
SMITH: Oh, come on, is that true?
DYLAN: Yeah, it is.
SMITH: You don't take the Ubers?
DYLAN: I don't like to.
SMITH: Why not?
DYLAN: Only - maybe to the airport, maybe - just maybe, but... No.
SMITH: Yeah, it must be particularly hard for Freidman because right now, he's still making money. He's still making a lot of money. All of his cabs are still out on the roads. It's not like they're put away in some garage or something. They're going 24 hours a day in New York. And he's got plenty of drivers who are still willing to pay him by the day and by the week for the pleasure of driving those cabs. We talked to the city of New York. We asked them for all the statistics they had on sort of the impact of Uber. And as you might expect, the number of people taking taxis has been slowly dipping over the last couple of years. But the average fare for each ride has been going up. And when you look at it, drivers can still make as much money per day in a yellow taxicab as they did five years ago, before Uber came to New York.
VANEK SMITH: Freidman's real problem is that he borrowed too much money. If Freidman had been doing business like his dad had done business, he would be fine. He's got all those big loans from those big nervous banks, and he is at their mercy.
SMITH: We never listen to our fathers. You know, if this all goes south for Gene Freidman, if it's sort of the worst-case scenario, if he has to sell his beloved medallions or if they get foreclosed upon and suddenly medallions flood the market, the truth is somebody is going to buy them. Oh, I mean, it's going to be at a much, much, much lower price. But taxi medallions will be bought. They will be riveted onto some yellow car in a garage somewhere in Queens. And the medallions will be right back where they've always been, on the streets of New York looking for fares.
(SOUNDBITE OF SONG, "NEW YORK GROOVE")
KISS: (Singing) Many years since I was here...
SMITH: Let us know what you thought of today's show. You can email us, firstname.lastname@example.org. Or you can tweet us @planetmoney. I'm @radiosmith. What are you, Stacey?
VANEK SMITH: I'm @svaneksmith.
SMITH: Oh, nice.
VANEK SMITH: It wasn't taken.
SMITH: Our show was produced today by Nick Fountain, who went with us to the taxi garage and found this story. It was also produced by Frances Harlow. And it was edited by the great David Kestenbaum.
VANEK SMITH: And if you're looking for more shows to listen to, check out Snap Judgment with Glynn Washington. Is an hour-long show about real people with real stories. Find it at npr.org/podcasts or on the NPR One app. I'm Stacey Vanek Smith.
SMITH: And I'm Robert Smith. Thanks for listening.
(SOUNDBITE OF SONG, "NEW YORK GROOVE")
KISS: (Singing) I'm back, back in the New York groove. I'm back, back in the New York groove, back in the New York groove, in the New York groove. In the back of my Cadillac...
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