Stansberry: The Corruption of America


The Corruption of America

Inside This Month’s Issue
Where the criminals live… and why
Detroit’s gone, its politicians remain
Newt’s $1.6 million shakedown of Fannie Mae
Why I’m still bullish on America
By: Porter Stansberry

The numbers tell us America is in decline… if not  outright collapse.

I say “the  numbers tell us” because I’ve become very sensitive to the impact this  kind of statement has on people. When I warned about the impending bankruptcy  of General Motors in 2006 and 2007, readers actually blamed me for the  company’s problems – as if my warnings to the public were the real problem,  rather than GM’s $400 billion in debt.

The claim was absurd. But the resentment my work  engendered was real.

So please… before you read this issue, which makes  several arresting claims about the future of our country… understand I am  only writing about the facts as I find them today. I am only drawing  conclusions based on the situation as it stands. I am not saying that these  conditions can’t improve. Or that they won’t improve.

The truth is, I am optimistic. I believe our country is  heading into a crisis. But I also believe that… sooner or later… Americans  will make the right choices and put our country  back on sound footing.

Please pay careful attention to the data I cite. And  please send me corrections to the facts. I will happily publish any correction  that can be substantiated. But please don’t send me threats, accusations  against my character, or baseless claims about my lack of patriotism. If I  didn’t love our country, none of these facts would bother me. I wouldn’t have  bothered writing this letter.

I know this is a politically charged and emotional  issue. My conclusions will not be easy for most readers to accept. Likewise,  many of the things I am writing about this month will challenge my subscribers  to re-examine what they believe about their country. The facts about America today tell a painful story about a country in a  steep decline, beset by problems of its own making.

One last point, before we begin… I realize that this  kind of macro-economic/political analysis is not, primarily, what you pay me  for. You rightly expect me to provide you with investment opportunities –  whether bull market, bear market, or total societal collapse. And that’s what  I’ve done every month for more than 15 years.

But that’s not what I’ve done this month. You won’t  find any investment ideas at all in these pages. This issue is unlike any other  I have ever written.

I’m sure it will spark a wave of cancellations –  costing me hundreds of thousands of dollars. I fear it will spark a tremendous  amount of controversy. Many people will surely accuse me of deliberately  writing inflammatory things in order to stir the pot and gain attention. That’s  not my intention. The truth is, I’ve gone to great lengths throughout my career  to protect my privacy.

I am speaking out now because I believe someone must.  And I have the resources to do it. I am  sharing these ideas with my subscribers because I know we have arrived at the  moment of a long-brewing crisis.

Our political leaders, our business leaders, and our  cultural leaders have made a series of catastrophic choices. The result has  been a long decline in America’s standard of living.

For decades, we have papered over these problems with  massive amounts of borrowing. But now, our debts total close to 400% of GDP,  and America is the world’s largest borrower (after being the world’s largest  creditor only 40 years ago)… And the holes in our society can no longer be  hidden…

We’ve reached the point where we will have to fix what  lies at the heart of America’s decline… or be satisfied with a vastly lower  standard of living in the future.

How do I know? How do I statistically define the  decline of America?

The broadest measure of national wealth is per-capita  gross domestic product (GDP). Economists use this figure to judge standards of  living around the world. It shows the value of the country’s annual production  divided by the number of its citizens. No, the production isn’t actually  divided among all  the citizens, but this measure provides us with a fair  benchmark to compare different economies around the world. Likewise, this  measure shows the growth (or the decline) in wealth in societies across time.

So… is America growing richer or poorer based on  per-capita GDP? Seems like a simple enough question, doesn’t it? Is our economy  growing faster than our population? Are we, as individuals, becoming more affluent?  Or is the pie, measured on a per-person basis, growing smaller?

This is the most fundamental measure of the success or  the failure of any political system or culture. Are the legal and social rules  we live under aiding our economic development or holding us back? What do the  numbers say?

Unfortunately, it’s a harder question to answer than it  should be. The problem is, we don’t have a sound currency with which to measure  GDP through time. Until 1971, the U.S. dollar was defined as a certain amount  of gold. And the price of gold was fixed by international agreement. It didn’t  actually begin to trade freely until 1975. Therefore, the value of the U.S. dollar  (and thus the value of U.S. production, which is measured in dollars) was  manipulated higher for many years.

Even today, our government’s nominal GDP figures are  greatly influenced by inflation. The influence of inflation is particularly  pernicious in GDP studies. You see, inflation, which actually reduces our  standard of living, drives up the amount of nominal GDP. So it creates the  appearance of a wealthier country… while the nation is actually getting  poorer.

The only real way to accurately measure per-capita GDP is  to build our own model. The need to build our own tools tells you something important  – the government doesn’t want anyone to know the answer to this question. It  could easily publish data far more accurate than the indexes it puts out. But  government doesn’t want anyone to know. And it wants to be able to say  “those aren’t the real data” when studies like ours produce bad news.

So pay attention to how we built our charts. You can  see for yourself that our data are far more accurate than the government’s  figures. Our data are based on the real purchasing power of the currency, not  the nominal numbers, which are completely meaningless in the real world.

The question we are trying to answer is: What would  per-capita GDP numbers look like, if we used a real-world currency, like gold,  or a basket of commodity prices, instead of the paper-based U.S. dollar? What  would the figures be if we measured GDP in sound money instead of the  government’s funny money?

Here’s how we figured it out. We took the government  numbers for nominal GDP and measured them first against commodity prices, and  later (after it began to trade freely) gold. We used a standard commodity index  (the CRB) up to 1975 and gold post-1975. The result of this analysis shows you  the real trend in U.S. per-capita  GDP, as measured on a real-world purchasing power basis.

Our analysis shows you what’s actually happened to our  real standard of living. The results, we suspect, will surprise even the most  bearish among you.

America is in a steep decline.

Americans Are  Getting Poorer – Fast

Let me anticipate the “official” criticism of  our study. Many people will claim that our numbers aren’t “real.”  They will say that we “mined” the data to produce a chart that showed  a steep decline.

That’s simply not so. All we’ve done is convert the  government’s nominal GDP stats into a fixed currency value that’s based on  real-world purchasing power. The fact is, our data are far more accurate than  the government’s because they represent the real-world experience. That’s why our data are far more closely  correlated to other real-world studies of wealth in America.

Consider, for example, annual sales of automobiles.  Auto sales peaked in 1985 (11 million) and have been declining at a fairly  steady rate since 1999. In 2009, Americans bought just 5.4 million passenger  cars. As a result, the median age of a registered vehicle in the U.S. is almost  10 years.

Our data shows that real per-capita wealth peaked in  the late 1960s. Guess when we find the absolutely lowest median age of the U.S.  fleet? In 1969. At the end of the 1960s, the median age of all the cars on the  road in the U.S. was only 5.1 years. Even as recently as 1990, the median age  was only 6.5 years.

Rich people buy new cars. Poor people do not.

Most important, our data “proves” something I  know many of you have felt or perceived for many years. You’ve seen the decline  of your neighborhoods. You’ve gone years without being able to earn more money  in your job. Or you’ve seen your purchasing power decrease to the point where  you’re now substituting lower-quality products on your grocery list for the  brand-name products you used to buy.

You can see how much harder it is on your children to  find good jobs, to buy good housing or a new car. As a result, few people under  the age of 40 have the same kind of “life story” as their parents.

And because they can’t “make it,” many have decided to “fake it.” The average college  student now graduates with $24,000 in debt… and by his late 20s has racked up  more than $6,000 in credit card debt. Meanwhile, median earnings for Americans  aged 25-34 equals $34,000-$38,000. (Source: Demos.org, “The Economic State  of Young America,” November 2011.)

Can you imagine starting your life out as an adult with  a personal debt-to-income level at close to 100%?  What does this say about the state of our economy? What does this say about the  state of our culture?

Who Suffers Most

It’s not only the young that are having trouble in  America. It is also the old.

Debt levels among households headed by people older  than 62 have been rising for two decades. The average mortgage size for this population is now $71,000 – five times  larger than it was in 1987 (adjusted for inflation), according to William Apgar  of Harvard’s Joint Center for Housing Studies.

Older Americans are also more reliant on credit card  debt than ever before… credit card debt.  From 1992 through 2007 (which is the latest data available) older Americans took on  credit card debt at a faster pace than the population as a whole. According to USA Today, lower- and middle-income  Americans aged 65 and older now carry an average of more than $10,000 in credit  card debt, up 26% since only 2005.

Given average interest rates of 20% for these debts,  it’s a fair bet that these obligations will never be repaid. But they will have  a terrible impact on the standard of living of these older Americans.

What in the heck is going on? Don’t Americans pay off  their mortgages before they retire? Don’t they work hard during their careers,  save, and invest, so they can move to Florida and spend their retirement in  comfort?

Older Americans living with credit card debt! This  doesn’t sound like America, does it? Or maybe it does.

My bet is that most of my subscribers know that  something has gone terribly wrong with America. It’s not easy to figure out how  all of this happened… but you know from your own experiences that these  numbers aren’t wrong. It might not be pleasant to think about… but these  figures paint a sad but accurate picture: America  is not the country it was 40 years ago. These changes are warping our economy,  politics, and culture.

In this month’s issue, I’d like to try to define a few  of the core reasons we’re in this situation. I can’t possibly analyze all the  factors that have led to this decline. But I want to document the growth of  graft in politics. I want to demonstrate – with real facts and examples – how  public company leadership has deteriorated. And I want to document some of the  things that are occurring in the broader society, all of which I believe are  linked to this fundamental decline in our standard of living.

You see, I believe the decline of our country is  primarily a decline of our culture.

We have lost our sense of honor, humility, and the  dedication to personal responsibility that, for more than 200 years, made our  country the greatest hope for mankind. I want to detail some of the factors  that gave rise to the current entitlement society. We have become a country of  people who believe their well-being is someone else’s responsibility.

I’ve labeled these problems: The Corruption of America.

These problems manifest themselves in different ways  across institutions in all parts of our society. But at their root, they are  simply facets of the same stone. They are all part of the same essential  problem.

The corruption of America isn’t happening in one part  of our country… or in one type of institution. It is happening across the  landscape of our society, in almost every institution. It’s a kind of moral  decay… a kind of greed… a kind of desperate grasp for power… And it’s  destroying our nation.


Henry Paulson and Jon Corzine - formerly of Goldman Sachs


The Ethos of  ‘Getting Yours’

Americans know, in their bones, that something terrible  is happening. Maybe you can’t articulate it. Maybe you don’t have the  statistics to understand exactly what’s going on. But my bet is, you think  about it a lot.

For me, a poignant moment of recognition came this  month.

Bloomberg news published an article based on  confidential sources about how Henry Paulson, the former CEO of Goldman Sachs  and the Republican U.S. Treasury secretary during the financial crisis, held  a secret meeting with the top 20 hedge-fund managers in New York City in late  July 2008. This was about two weeks after he testified to Congress that Fannie  Mae and Freddie Mac were “well-capitalized.”

I knew for a fact that what Paulson told Congress  wasn’t true. I wrote my entire June 2008 newsletter detailing exactly why  Fannie and Freddie certainly had billions in losses that they had not yet  revealed to investors – $500 billion in losses, at least. There was no question  in my mind, both companies were insolvent – “zeros,” as I explained.

And yet, in front of Congress, the U.S. Treasury  secretary was saying exactly the opposite. Either I was a liar… or he was.

Then… only a few days later… what did Paulson tell  those hedge-fund managers?

He told them the same thing I had written in my  newsletter. He told them the opposite of what he’d said publicly to Congress. He told these billionaire investors  that Fannie and Freddie were a disaster… They would require an enormous,  multibillion-dollar bailout… The U.S. government would have to take them  over… And their shareholders would be completely wiped out.

Here you had a high-government official, explicitly  lying to Congress (and by extension, the general public), while giving the real  facts to a group of people who represented the financial interests of the  world’s wealthiest folks. The story didn’t come to the public’s attention for two years.

This was the most outrageous example of graft and  corruption I have ever seen. Certainly it involves more billions of dollars in  misappropriated value than any other similar story I can recall. These managers  had the risk-free ability to make tens of billions of dollars, if not hundreds  of billions, by using derivatives to capitalize on what they knew was the  imminent collapse of the world’s largest mortgage bank. Who picked up the tab?  You know perfectly well. It was you and me, the taxpayers.

(One of the investment managers present at this meeting  was Steve Rattner, who by that point was already deeply involved in another bit  of graft, his efforts to bribe New York state pension-fund managers for large  investments into his hedge fund, from which he earned perhaps as much as $100  million. He later settled the charges for a mere $10 million shortly after  Andrew Cuomo was elected governor of New York.)

The Bloomberg story… about a crooked Treasury  secretary handing a room full of crooked billionaires inside information worth  billions of dollars… hardly caused a ripple. As far as I know, no actions are  being planned against Henry Paulson or any of the hedge-fund managers involved.  No other major media outlet picked up the story. I saw nothing about it from  the Department of Justice or the Securities and Exchange Commission.

What does that say about our country when even the most  egregious kind of corruption – involving hundreds of billions of dollars – is  simply ignored?

It seems like everyone in our country has lost his moral  bearing, from the highest government officials and senior corporate leaders all  the way down to schoolteachers and local community leaders. The ethos of my  fellow Americans seems to have changed from one of personal integrity and  responsibility to “getting yours” – the all-out attempt, by any means  possible, to get the most amount of benefits with the least amount of work.

You can see this in everything from the lowering of  school standards (revising the SAT) to the widespread use of  performance-enhancing drugs in professional, college, and high school sports.  Cheating has become a way of life in America.

I have an idea about how this happened… about the  root cause of this kind of corruption and why it was inevitable, given some of  the basic facts regarding how we’ve organized our government and our  corporations.

Let me show you the numbers – the hard facts – behind  what’s happened to our country…

The Corruption of  Politics

I’ll start with one of the biggest factors in the  decline of our civilization – the link between welfare, education, crime, and  politics.

It is routinely alleged in national political debates  that something is fundamentally unfair and un-American about the huge  “wealth gap” between the poorest Americans and the wealthiest. Some  politicians like to argue that the poor never have a real shot at the American  dream, and as a nation, we owe them more and more of our resources to correct  this injustice. Most important, it is alleged that only the government has the  resources to correct this inequality.

This is a dangerous notion…

First, it promotes the idea of entitlement. Entitlement  is a fairly new idea in the American political lexicon – perhaps because most  of our nation’s wealth is still fairly new. The American idea of entitlement  argues that because you were born into a rich society, other people owe you  something. The idea has become pervasive in our culture. It underlies the basic  assumptions behind the idea of a “wealth gap.” Implicit is the  assumption that successful Americans haven’t rightfully earned their wealth…  that in one way or another, they’ve taken advantage of the society and have an  obligation to give back most of what they’ve “taken.”

As you’ll see, I believe the idea of entitlement lies  at the root of many of our most serious cultural problems.

The more obvious problem is the idea that the  government is responsible for fixing the “wealth gap.” But the  government has proved wholly ineffective at dealing with poverty in America.  The data is nearly conclusive that government efforts are far more likely to be  the cause of the wealth gap than the solution.

The simple fact is, the government has to take  resources from someone before it can dole them out to others. And this act of  taking turns out to be economically destructive. It reduces the market’s  incentives for entrepreneurs. The more you take from the productive members of  society, the less productive they become. That’s the primary lesson of the  history of socialism. Yet… many of our political leaders seem oblivious to  this iron law of human nature.

Consider a simple analysis that compares the  unemployment rate with the size of the federal government’s spending, as  measured against GDP. (We created this chart after reading a similar analysis   at  Mark Perry’s excellent financial blog, Carpe Diem.)

As you can see in this chart, the larger the government grows as a  percentage of our economy, the higher unemployment rises. The more government, the less opportunity. These figures are  similar when studied comparatively across many different countries.

We also know from decades of experience that little of  the government’s funding for the poor will ever reach those who are actually in  need. Instead, these kinds of socialist policies end up sending billions of dollars into  the hands of unions, “community organizers,” and other sponsors of  the Democratic Party. This tightens their political control of America’s inner  cities, which have become the source of our country’s most intractable social  problems.

Believe me, I have reams of data and decades of case  studies for these conclusions. But before we get to my  proof, I want you to simply assume that what I’m saying is 100% correct. Assume  most of the government’s social spending ends up corrupting the politics of the  inner city. Assume these efforts actually make the “wealth gap”  larger. Assume these policies and the politicians who sponsor them are actually  creating a society of complete dependence, where the spread of ignorance has  created entire generations of people who aren’t educated enough to know they’ve  been enslaved by their own leaders.

If these things  are true, if my conclusions are exactly right, what would America’s poorest  communities look like today?

It has now been almost 50 years since the start of the  War on Poverty, President Lyndon Johnson’s program to radically increase  domestic welfare spending. These programs and their various spinoffs have been  at the center of Democratic politics ever since. In fact, if you compare  speeches about these programs from the mid-1960s until today, you will find the  verbiage never changes. Obama is merely echoing the same calls for “social  justice” that Robert Kennedy used in his ill-fated 1968 campaign for  president.

But besides the soaring rhetoric, besides the promise  of a “chicken in every pot,” what have these programs actually  achieved? The wholesale destruction of urban communities across America,  communities that are overwhelmingly African American. If the intention of these  programs had been to destroy black communities, you could have hardly done more  damage than the last 50 years of Democratic policy.

I don’t think most Americans realize how dangerous  these communities have become or the toll they take on our country as a whole.  That’s primarily because talking about this problem is seen as racist. That’s  complete nonsense. The victims of these policies are primarily black people.  Trying to help them restore dignity and independence to their communities isn’t  a racist goal. It’s humanitarian.

And let me offer a prediction… Sooner or later, the  people in these communities are going to finally point their finger at the  politicians who’ve lied and pandered to them for decades, all while stealing  from them at every turn. When that moment comes, having a track record of  correctly speaking out about the real nature of these problems will be a  valuable political asset.

No, I’m not running for office… I’m just trying to  buck-up the politicians who I know read this letter. They need to get out in  front of this issue.

Let me give you some of the numbers that define the  enormous scope of these problems.

According to the NAACP, Texas taxpayers spent $175  million in 2009 to imprison residents from a small part of Houston – only 10  zip codes out of 75. Thus, people from neighborhoods that are home to only  about 10% of the city’s population account for more than 33% of the state’s  entire $500 million annual prison spending. These neighborhoods are  overwhelmingly poor and African American.

In Pennsylvania, taxpayers will spend $290 million in  2009 to imprison residents from just 11 of Philadelphia’s neighborhoods,  representing about 25% of the city population. On this relatively small urban  area, the state will spend roughly half its $500 million prison budget. These neighborhoods are overwhelmingly poor and  African American.

In New York, taxpayers will spend $539 million to  imprison residents from only 24 of New York City’s 200 different neighborhoods.  Only 16% of the city’s population lives in these areas, but they will account  for nearly half of the  state’s  $1.1 billion prison budget. These  neighborhoods are overwhelmingly poor and African American.

America has many problems… but these neighborhoods  represent more than a society in decline. Life  in these places reflects a complete collapse of Western civilization. What’s happening in these communities? A breakdown of the family and the  resulting collapse of the school system. What you have left is crime – violent  and political.

In Detroit, only 27% of the black male students in the  school system graduate from high school. This  is not a racial problem: Only 19% of the white male students graduate from  those same schools. What’s causing this problem? A complete breakdown of  society. When communities can no longer teach their children the most basic  academic skills, such as reading, math, history, literature, and economics…  what future can we expect? And what kind of society do you expect after several  generations of total ignorance?

These problems are still found primarily in urban  areas, but they are spreading across the country. In Pinellas County, Florida,  only 21% of black male students graduate from high school. In Palm Beach  County, Florida, you find a similar number. Likewise Duval County, Florida…  and Jefferson Parish, Louisiana… and Charleston County, South Carolina. In  Nebraska, only 40% of black male students graduate from high school. In Nevada,  only 45%. In New York state, only 25%.

What opportunities are available in America to people  without even a basic education? The New York Times reports almost 70% of  black males without a high school diploma are unemployed in the United States.

In many predominantly black, urban communities, the  actual unemployment rate is close to 100% for young dropouts. Given these  figures, it isn’t surprising that many of these people end up in jail.

According to various studies, black males who dropped  out of school by age 16 are four times more likely to end up in jail than those  who remained in school. Crime is literally all they know. Likewise, a black  youth whose mother was a high school dropout is 88% more likely to end up in  jail. These are the two primary reasons nearly one in 11 adult black men are  either in jail or on parole.

How did this all happen? How did we end up with expensive schools that can’t  teach? How did we end up with young mothers who aren’t married? How did we end  up with entire generations of people who won’t – and probably can’t – work in  the labor force? How did we end up with a skyrocketing prison population? The  prison population in America has soared from less than half a million people in  1980 to more than 2.5 million people today. More than 7 million adults are in  prison or on parole in the United States. We  have an incarceration rate that’s seven times higher than any other industrialized  nation.

The land of the free?

Let’s ask the most basic question: What has the  gigantic increase in welfare spending and education spending done for the  underclass of America? It seems apparent that growth in federal spending has  caused far more harm than good. When you study these neighborhoods, what you  find is a horrifying story that’s been repeated, generation after generation  since the early 1960s. It’s a story of families who have been destroyed by  their dependency on the state.

The truly extraordinary part is that all  these  things happened after these  neighborhoods began voting and electing their own (typically black and  Democratic) leadership. The socialism they voted for themselves led most  directly to the destruction of their communities. It was their own mayors, ward  leaders, and congressmen who chose this path for these communities.

Let me show you one case study – Detroit.

How Socialism Came  to America… and Destroyed  Detroit

In 1961, the last Republican mayor of Detroit, Louis C.  Miriani, lost his re-election bid. He probably would have lost to anyone who  ran against him because he was known to be a crook. He later served 10 years in  prison for tax evasion.

The man who defeated him, Jerome Cavanagh, was a  Democrat. He ushered in a new kind of politics in Detroit. Cavanagh, who was  white, got elected by promising to give Detroit’s African American population  the civil rights they deserved. But he didn’t stop there. Seeing the political  advantage to serving this community’s interests, he did all he could to bring  government benefits and government spending to Detroit’s black community.

Cavanagh brought socialism to Detroit.

Mayor Cavanagh was the only elected official to serve  on President Johnson’s Model Cities task force. The program was modeled after  Soviet efforts to rebuild whole urban areas in Eastern Europe. At the time,  this centralized approach to urban development was proclaimed as an advantage  to the Soviet system, something that could give them an edge in the Cold War.

Detroit received widespread acclaim for its leadership  in the program, which attempted to turn a nine-square-mile section of the city  (with 134,000 inhabitants) into a “Model City.” To help finance the  effort, Cavanagh pushed a new income tax through the state legislature and a  “commuter tax” on city workers. He promised the mostly poor and black  residents of the Model City area that the rich would pay for all of these  benefits. He bought their votes with taxes they didn’t have to pay.

It was classic American socialism.

More than $400 million was spent on the program – and  that was back when quarters still had actual silver in them. The feds and  Democratic city mayors were soon telling people where to live, what to build,  and what businesses to open or close. In return, the people received cash,  training, education, and health care.

But they didn’t like being told what to do… or how to  live. Not surprisingly, the Model Cities program was a disaster for Detroit.  Within five years, it had helped trigger a complete breakdown of civil order  and the city’s population began to rapidly decline.

On July 23, 1967, police attempted to break up a  notorious “blind pig” in the heart of the new Model City. Blind pigs  were after-hours clubs that featured gambling and prostitution. They were part  of the black culture of Detroit, with many having been in operation since the  Prohibition period. The community tolerated these establishments – but the  political leadership didn’t want any blind pigs in the new Model City area.

On this particular night, at this particular club, the  community was celebrating the return of two Vietnam War veterans. More than 80  people had packed into the club. The police decided to arrest everyone present,  including the two war vets. This outraged the entire neighborhood, which began  to riot. The scene turned into the worst race riot of the 1960s.

As my friend Doug Casey likes to say about the War on  Poverty, “The poor lost.”  The violence killed more than 40 people and left more than 5,000 people  homeless. One of the first stores to be looted was a black-owned pharmacy.  The largest black-owned clothing store in the city was also burned to the  ground. Cavanagh did nothing to stop the riots. (He claimed a large police  presence would make matters worse.) Five days later, President Johnson sent in  two divisions of paratroopers to put down the insurrection.

The situation destabilized the entire city. Most of the  people who could afford to leave did. Over the next 18 months, 140,000 upper-  and middle-class residents – almost all of them white – left the city.

And so, you might ask… after five years of  centralized planning, higher taxes, and a fleeing population, what did the  government decide to do with its grand experiment? You’ll never guess…

Seeing it had accomplished nothing but failure… The  government expanded the Model City program with 1974’s Community Development  Block Grant Program. Here again, politicians would decide which groups (and  even individuals) would receive state funds for various “renewal”  schemes. Later, big business was brought into the fold. In exchange for various  concessions, the Big Three automakers “gave” $488 million to the city  for use in still more redevelopment schemes in the mid-1990s.

What happened? Even with all of their power and all of  the money, centralized planners couldn’t succeed with any of their plans.  Nearly all of the upper- and middle-class citizens left Detroit. The poor fled,  too. The Model City area lost 63% of its population and 45% of its housing  units from the inception of the program through 1990.

Even today, the crisis continues. At a recent auction  of nearly 9,000 seized homes and lots, less than one-fifth of the available  properties sold, even with bidding starting at $500. You literally can’t give  away most of the property in Model City areas today. The properties put up for  sale represented an area the size of New York’s Central Park. Total vacant land  in Detroit now occupies an area the size of Boston. Detroit properties in  foreclosure have more than tripled since 2007.

None of this is surprising. It’s exactly what you’d  expect to see given the implementation of a socialist scheme like a Model  Cities’ program. Quite simply, coercion doesn’t work for economic development.  You cannot tax yourself into prosperity.

It might buy votes… but sooner or later the voters  will realize all that’s been promised was a lie. Won’t they?… Maybe not.

You see, the failure of the Model Cities program and of  the War on Poverty wasn’t surprising. What is surprising is that every  single mayor of Detroit since 1961 has been a Democrat. And extremely  liberal, black politicians have filled almost every major political office in  the city since the mid-1960s.

For example, John Conyers, Jr. has represented most of  Detroit’s worst neighborhoods since 1965. Today, Conyers is the  second-longest serving congressman in the House. And his election track record  could be described as “Putin-esque.” Conyers doesn’t merely win all of his election campaigns… He wins by  margins that aren’t explainable in a normal, two-party system.

He defeated Republican Robert Blackwell in 1964,  getting 84% of the vote. He was re-elected 13 times in a row from that  district, all with a greater margin of  victory than 85%. Ironically, the district was so ill-served by his  socialistic policies that about half of the people moved away. The population  losses led to redistricting. From then on, his margin of victory has fallen…  to “only” around 80%.

These election results don’t seem reasonable, do they?  They aren’t. By controlling the state legislature in Michigan, the Democrats  are able to draw the congressional districts in a way that guarantees them  almost permanent control. It’s no different than what despots do all over the  world. They hold an “election.” But it’s only for show.

And what do the Democrats do with this power? They push  a form of American socialism. This political system features transfer payments,  government jobs, and lucrative government contracts to voters in exchange for  political support – and in many cases, outright bribes. They do all of these  things under the cover of “progressive” politics and “social  justice.”

But if you brush away the veneer, what you find is a  history of abuse of power, corruption, and outright bribery. Conyers himself  was found guilty of several minor ethical violations in 2006 – mainly of using  his staff as personal servants, forcing them to babysit and chauffer his  children. In 1992, he was one of the most egregious abusers of the House  Banking scandal. He wrote 273 bad checks and left his account overdrawn for  nine months. But that’s all small-time graft compared to how things really work  in his office and in his district.

How do I know? Well… just ask yourself where Conyers’  wife sleeps today.

Monica Conyers, the wife of the second-longest tenured  congressman in the United States, sleeps in a federal prison in West Virginia.  She pled guilty to bribery in June 2009. She is serving a 37-month sentence  for accepting $60,000 in bribes as the president pro tempore of the Detroit  City Council. And yet… and yet… Conyers won re-election handily in  2010.

How is that possible?

These kinds of people and their political philosophy  have destroyed what was once America’s fourth-largest city. There is almost  nothing left of what was the capital of America’s industrial heartland. It’s  not hard to understand what has happened. When you start taxing people at  extremely progressive rates to pay for socialist “benefits”… when  you start telling them which schools their children must attend… when you  start giving jobs away to people based on political patronage, race, or  anything other than ability… you quash human freedom, you create dependency.  And you deter capital and investment… which bogs down productivity and economic  growth. If continued for long enough, it leads to social collapse.

And Conyers is hardly an anomaly. Just look at those  same blighted districts in Houston and Philadelphia…

In Houston, most of the city’s worst neighborhoods in  terms of high-school graduation rates and crime are found in Texas  Congressional District 18, where Democrats have won every election since the  district was created through re-zoning in 1972. In 1994, Sheila Jackson Lee won  the seat by promising to deliver more federal benefits to her constituents…

To appreciate the sterling representation the Honorable  Ms. Jackson Lee provides, consider this… In 2010 in bizarre remarks before  Congress, she demanded the government recognize victory in Vietnam. You can try  to figure out what she’s talking about here.  She also alleged racism on the part of her fellow  members of Congress who were voting against raising the debt ceiling. Don’t  believe it? View for yourself.

In Philadelphia, Chaka Fattah represents the worst parts  of the city, Pennsylvania’s 2nd Congressional District. The 2nd District is the  fifth-most Democratic Congressional District out of the 435 in Congress (and  the most Democratic outside of New York) based on the consistency and margin of  Democratic victories. A black Democrat has held the seat since 1963.

Among Chaka Fattah’s political highlights is his  economically illiterate plan to implement a 1% surcharge on all financial  transactions and transfers in lieu of all other forms of tax. This ill-fated  plan, which hasn’t gotten a single co-sponsor, ignores everything we know about  actual human behavior. (If you implemented such a cost to financial  transactions, the viability of those transactions would be destroyed and they  wouldn’t occur.)

Fattah’s other notable political position is his  support for convicted cop killer Mumia Abu-Jamal. Mumia’s case has been a cause  célèbre for years. The details of his endless appeals are tedious… just  know the evidence presented against him is overwhelming. And the Fraternal  Order of Police has consistently campaigned against Fattah’s re-election over  his support of Mumia.

The larger point is… These districts are among the  most blighted in our nation. Society has broken down there to a horrible  degree. Opportunity has vanished… Crime is rampant… Dependency on the state  is the norm. The leadership in these communities should be the most  scrutinized, their elected positions among the most contested. And yet, they  are the safest seats in Congress. The  officials dominance goes  unchallenged.

Why haven’t these policies and these leaders been  dropped – even after they’ve pled guilty to outright bribery? You would think  having experienced enough failure, having lived through horrible riots,  terrible crime, total economic collapse, brazen corruption… that sooner or  later, the voters in Detroit (and many other cities in America) would come to  their senses. But that’s not what happened. Instead, these systems have  continued to fail up to the point of total collapse. It is as if one part of  our society decided to run off the cliff… and then continued to do so for decades.

Why? Why did this happen? Why does it continue to  happen?

Read the rest at Stansberry Research