I wrote for the Motley Fool a long time ago. Back then it was a great outfit seeking to educate investors about stocks. Then they sold out and the quality of their content went into the toilet, as they focused all efforts on selling newsletters.

Nowhere is this more evident than in articles by current janitor-in-training, Jordan Wathen. He’s been challenged to answer numerous questions to back up his alleged knowledge and still hasn’t answered. The kid still doesn’t understand that he has no idea what he’s talking about with regards to stock investments, and his latest article demonstrates staggering ignorance with respect to the taxi medallion financial industry.

Wathen takes on a particular legacy taxi medallion financial lender of which he is short. His arguments are, as usual, uninformed and specious. He seems to think that because this company has claimed zero losses in its medallion portfolio, and because Montauk Credit Union was just seized by regulators because it had no losses but “for being “unsafe and unsound,” due to its growing pile of past due medallion loans”, therefore this other company will be, as well.



The ignorance is staggering.

What Wathen doesn’t understand is that every lender is a different animal, with different underwriting standards. The legacy conservative medallion lender he is short has been in the business long 3 times longer than he’s even been alive. They write conservative loans, backed by excessive cash flow, and more importantly, personal guarantees as additional collateral. Their initial LTV’s were around 40%.

Montauk, and other aggressive lenders like Capital One and Citigroup and LOMTO and Melrose, were far more aggressive, making loans initially at 75% LTV. They likely do not have personal guarantees behind their loans or, if they do, their value is not enough to make up for losses.

Regulators seized Montauk because almost all of their asset base are medallion loans, most of those are weak loans, and now they are paying the price for it. It is no different than Countrywide’s crappy mortgage loans, and the reason that firm imploded.

However, the legacy conservative lender Jordan Wathen is short is akin to US Bank, which had virtually no exposure to bad loans, and consequently came out of the housing crisis stronger than ever.

Jordan Wathen’s chart showing when that company originated most of its loans shows that, yes, they were made when the medallion market was near its highs. But he doesn’t mention that their LTVs were at 40% while others were at the aforementioned 75% or higher. The average medallion loan at the company is about $455,000, whereas it is significantly higher for Montauk and others.

Jordan Wathen isn’t content to show off that ignorance. He then flies into Stupidville by projecting what would happen to the company if it recorded 10% losses on its medallion portfolio. dunce-cap

As quoted by a poster on the Yahoo Finance Message Board, Wathen makes amateur errors. “Medallion Bank’s loan reserve is in excess of $20 million which SOMEHOW Wathen FORGOT to mention in his so-called analysis. Second, Medallion Bank’s total equity is in excess of $150 million (wathen uses $125 million) and MOST IMPORTANT of all, the Bank’s annual pretax earning power is well in excess of $40 million. As a result, a THEORETICAL 10% loss (which is incredibly large) on Medallion loans… about $33 million… would be TOTALLY ABSORBED by the Bank’s earning power and loan reserve with ZERO reduction in its equity base.”

Yet there are NO LOSSES. While delinquencies have crept up, some of them have been restructured, likely lowering interest rates in the near future if not eliminating them altogether so payments go to reducing principal. Does Jordan Wathen expect no delinquencies at all? Of course not. But in ANY portfolio, you will always have those on the far edge of a bell curve that represent the weakest borrowers.

Finally, what Jordan Wathen has never understood is that borrowers are extremely unlikely to walk away from any loan, no matter what the underlying medallion market price is. A taxi is not a house you can walk away from. A taxi is a livelihood. It makes no sense to walk away from a loan so that a blue-collar taxi driver can go find some other job when the Labor Force Participation Rate is at a 40-year low, and when Uber has clearly topped in New York City.

The Motley Fool has damaged its brand enough. It need not damage it further by permitting charlatan “analysts” like Jordan Wathen a forum for his nonsense.

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