When I heard the start of a story about New York City cabs I didn’t think I’d find myself pulled into the story. The story turned out de be a clear explanation of the fluidity of the b
orderline between capitalism and socialism. The subject of the story, Gene Friedman, has made a great deal of money dealing in taxi cab medallions but is now lobbying the City to guaranty the loans he made in order to become a multi millionaire.
Friedman has a finance background but learned the taxicab business from his father. Unlike his father, who owned eight cabs, Friedman took advantage of low interest rates to keep buying taxicab medallions until he controlled 1,000 or more. As long as the income from the cabs exceeded the cost of the loans Freidman bought more medallions by using the medallions he currently controlled as collateral for new loans. Essentially, Friedman ran his own personal pyramid scheme. He didn’t really own much of anything. As the dynamics of the taxicab market has changed, due to innovations like Lift and Uber, Friedman’s bankers are less willing to provide loans on medallions that are dropping in value.
The fact is Friedman has made, and continues to make, a lot of money with very few assets. The return on Friedman’s actual investment is likely to be very high, because he isn’t using much of his own money. As the banks foreclose on the medallions Friedman is unprepared to repay he is lobbying NYC to guaranty his loans and is taking some of his various corporations into bankruptcy to avoid the financial obligations he committed to. In either case, Friedman has successfully pocketed the profits from his financing scheme and socialized the risk.
The take away from this story: you can make a lot of money if you embrace capitalism – especially if you have the heart of a socialist.