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News Analysis Homework Day 2 Micro Please read the following article from CBS News "Mylan CEO on EpiPen drug price controversy: 'I get the outrage'." Link: http://www.cbsnews.com/news/epipen-price-hike-controversy-mylan-ceo-heather-bresch-speaks-out/ Questions: Using the determinants of elasticit...

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Supply determinant

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The borrowers owe more on their loans than their properties are worth.

Homeowners in financial trouble?

Guess again.

This time, it is not homes that are losing their value but the taxicab licenses, commonly called medallions, that are required for companies to operate within Chicago. Disruption in the industry, in the form of increased competition from Uber and other ride-sharing companies, has caused medallion values to plunge. Also caught in the fallout: banks extending credit to taxi companies.

Since April 28 alone, a New York credit union has filed five lawsuits over a total of six medallions owned by five Chicago taxi owner-operators, alleging they're in default on their loans and seeking about $1.4 million. That brings to 28 the number of lawsuits that Lomto Federal Credit Union has brought against cab companies so far this year in Cook County Circuit Court.

The lender, in its lawsuits, acknowledges that tech startups have burst a bubble in the transportation industry.

Chicago taxi medallions now are worth about one-sixth of what they were four years ago, down to about $60,000 from a peak of $370,000, according to one estimate by another bank. Unlike rideshare companies, which allow people to use a smartphone app to order and pay for rides from drivers using personal vehicles, cab companies are required to have a city-issued medallion affixed to the hood of each of their vehicles.

Uber, which entered the Chicago market in 2011 with 40 drivers, has built a rapidly growing company that has been valued at more than $60 billion by its investors. Rival Lyft, valued at $7.5 billion, debuted in Chicago in 2013.

"Since the entrance of Uber and other ride-sharing companies into the public passenger vehicle market, Chicago taxicab medallions have consistently lost value," according to one of the lawsuits Lomto filed since April 28 in Cook County.

"The value of the medallion will continue to decrease significantly," the suit says.

The issue isn't limited to Chicago.

Bhairavi Desai, executive director of the New York Taxi Workers Alliance, said in an emailed statement that competition from ride-sharing companies is turning "full-time professional jobs ... into low-pay, insecure gigs."

"For drivers who also own the medallion, it means they face bankruptcy and foreclosures and longer hours to just make ends meet," Desai said. "It's a race to the bottom for a workforce already on the edge of poverty."

For Lomto and other lenders, meanwhile, it means souring loans on their balance sheets.

New York-based Signature Bank last year wrote down the value of, or set aside reserves for, each Chicago taxi medallion in its loan portfolio, company documents show. Citing dropping medallion prices, the company charged off $108.6 million in taxi loans in Chicago last year. Charge-offs occur when a loan is deemed uncollectable.

Signature holds another $55.2 million of loans tied to Chicago medallions and has made provisions for $12.2 million of those loans potentially going bad. That means Signature's exposure to the Chicago taxi market is now down to $43.1 million. That comes out to about $60,000 per medallion, Signature says.

Doing business with the taxi industry has been a bumpy ride for lenders both big and small.

Capital One blamed an earnings drop last year partly on rising losses in its national loan portfolio for taxi medallions. In late 2015, New York-based Montauk Credit Union, which, according to the National Credit Union Administration, primarily served taxi industries in New York, Chicago and Philadelphia, was seized by New York financial regulators due to "unsafe and unsound" conditions and later merged with another credit union.

Medallion Financial also has been dealt a blow by the taxi industry. The New York-based company, whose business lines include originating, acquiring and servicing loans that finance taxicab medallions, estimated the value of Chicago taxi medallions to be about $60,000 at the end of last year, down from a high of $370,000 in 2013. It cited increased competition from ride-sharing apps as a factor for pressures in the taxi industry. Medallion Financial said in company documents that about 20 percent of its medallion loan portfolio was at least 90 days past due at the end of the year, up from about 4 percent the prior year.

Records from the city of Chicago support the lenders' claims about dwindling medallion values.

The top price paid for a city cab medallion so far this year has been $100,000, according to city records on medallion sales.

In the taxi industry equivalent of a foreclosure, Lomto, founded 80 years ago by New York City cab medallion owners, is asking for the medallions back and says it's entitled to all proceeds of the businesses in the meantime. It also wants the court to prevent the taxi companies from selling or transferring the medallions.

Its most recent lawsuits have been filed against Future Cab Co., Modan Enterprise, Durrani Ent., Nanayaw and Vali Trans, all of Chicago.

In February 2014, for example, Lomto lent $260,000 to Future Cab so it could refinance its medallion. The loan, requiring monthly payments, comes due in 2019. The lawsuit alleges Future Cab is in default because it has been missing payments, and the court filing says that under the loan agreement, Future Cab is supposed to turn over its medallion to Lomto in case of a default.

But the company refuses to hand over the medallion, Lomto alleges. The lender also says it's entitled to all revenues generated through the cab, a white 2010 Toyota Camry Hybrid, according to city records.

Lomto is asking the court for a preliminary injunction and temporary restraining order to prevent Future Cab from selling or transferring the medallion and from operating a cab with the medallion. The reason: The value of the medallion could drop if, say, the taxi were found liable in an accident.

"The medallion is losing value every day to the market entry of ride-sharing companies," the lawsuit says.

Lomto wants the court to award a judgment of more than $248,000 due on Future Cab's loan as of last month.

The background, allegations and relief sought in the lawsuit against Modan and others are similar.

Lomto made two loans for a combined $500,000 in 2013 to Modan to refinance two medallions, both for white 2011 Toyota Camry Hybrids. The loans mature next year. Lomto, based in Woodside, N.Y., is asking the court to award it about $480,000 in the Modan case.

Cook County Circuit Judge Kathleen Pantle on Thursday approved two emergency temporary restraining orders against Modan and Nanayaw, meaning they're now not supposed to be driving the cabs in question.

Lomto lent $185,000 to Nanayaw in May 2012, a debt that matured Friday, according to the lawsuit. Lomto says it's owed about $175,000.

Lomto is represented by Chicago lawyer Frank Andreou. The credit union and Andreou declined to comment beyond the lawsuits, but Andreou said "amicable resolution is always preferred over litigation."

Four of the five recently sued cab companies couldn't be reached for comment.

Salman Durrani of Durrani Ent., one of the cab companies Lomto is suing, agrees with the credit union on one matter: He said he is "not making money due to Uber."

He said he tried to communicate that fact to Lomto in hopes of getting his loan modified but that he was unable to do so.
byerak@chicagotribune.com Twitter @beckyyerak

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As Uber rises and the cost of taxi medallions plummets, a lender is suing local cab operators who defaulted

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The borrowers owe more on their loans than their properties are worth. Homeowners in financial trouble? Guess again. This time, it is not homes that are losing their value but the taxicab licenses, commonly called medallions, that are required for companies to operate within Chicago.

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There is a lot of great resources in this folder. Some of them are macroeconomics, some are microeconomics.

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Classroom Matching Game Templates - Google Drive