January 02, 2018

$1m in capital for one New York City taxi medallion; only $16.000 for a bank to make a $1m loan to an AAA rated. Crazy!

Alistair Gray informs: “the value of the collateral, the medallions, has collapsed. New York City medallions were worth about $1m four years ago but some are now for sale for as little as $250,000” “Uber’s rise fuels financial crisis for taxi lenders” January 2.

$1m for “New York City licences, known as medallions, issued by the authorities to collect passengers”.

Sir, $1m for a New York City medallion, if that’s not a prime example of crony statism what is? Can there be any question of why Uber was needed? If you have to service a capital investment of this size, how high must the tariffs be and how much of these can be reasonably left to compensate the taxi drivers?

Compare this taxi driving capital requirement to that of banks according to Basel II. As payment for the benefit of regulators telling the world banks were regulated, and issuing various explicit or implicit deposit guarantees, banks needed to hold: 

1.6%, $16.000 in capital when lending $1.000.000 to an AAA rated client.

2.8%, $28.000 in capital when holding $1.000.000 in residential mortgages.

Max 8%, $80.000 in capital, for financing New York City medallions

PS. http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html