I believe, bailing out the taxi medallion moguls such as Evgeny
Freidman is ridiculous. The first thing that I noticed was his Russian name, so
looking at his biography showed he in fact was. That was not surprising at all
considering that this is background helped him rise in business, but it means he
is lucky at being able to rip off his drivers rather than good at business. He even paid $1.2 million in fines and restitution for ripping off his drivers. Now, it almost appears like he is trying to
extort money from New York City taxpayers because he took too much of a risk
investing so much into taxi medallions. He does know a bit about the taxi
business, but a YouTube video of his shows his business strategy was based upon
overpaying for medallions to outbid everyone. He would then lower his monthly
payments by extending the length of the financing terms. He was able to pay for
the loans with the large revenues he was generating and he didn’t even pay for
claims insurance for three years to defer the payments until later by being
self-insured. Payment deferrals helped him rise and even his gas hoarding that
helped him during Hurricane Irene allowed him to price gauge during that time,
and that was another way he was lucky. I do think it was a great idea for him
to bring hybrids into the taxi business in New York City, but his luck appears
to have run out. With the medallions dropping in value he should look for ways
to diversify to lower his diversifiable risk on his assets. I don’t know how
much he understands about finance, but he did mention in the video how many
were losing on the financial bubbles when he was making money without realizing
that the taxi medallions may have been a bubble. He even said his business is
recession-proof because he does better during recessions, but my problem with
that statement is not that he may be doing better during recessions but rather
him saying that the business he is in is recession-proof. That statement shows
that he fails to understand finance fundamentals because there is no such thing
when his returns are so high. One of the most important concepts in finance is
the relationship between risk and return because it's an axiom that flows through finance, but he fails to understand that his
business has risks with statements that claim his business is recession-proof.
That is essentially him claiming that he can get great returns and not bear the
risk. That is absolutely nonsense. If you wish the get the great returns you
must bear the risk. You cannot just bear the risk, and then demand the
taxpayers bail you oil when the business begins to go down under. I would
recommend him to look towards diversifying to reduce his risk because right now
he would likely need capital preservation rather than growth unless he wants to risk everything to possibly make huge returns. I can continue about this much longer explaining all
the fallacies, but rather I’ll just say that he should absolutely not be bailed
out under any circumstances. If you wish to get the great returns you must bear
the great risk that comes with it and that is what finance is about, so hearing
his attempts to extort the taxpayers shows just how much of a desperate state
he is now. Maybe just sell the medallions while they’ll still worth something
or risk losing everything. That risk is something he is unwilling to bear, but
that’s his problem. If he gets bailed out that will be crony capitalism at its
finest.
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