Tag Archives: Matt Taibbi

The Great American Bubble Machine

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — and they’re about to do it again

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By April 5, 2010

 

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

 By now, most of us know the major players. As George Bush’s last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton’s former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There’s John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain’s sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There’s Joshua Bolten, Bush’s chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year’s strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn’t one of them.

BUBBLE #1 The Great Depression

Goldman wasn’t always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids —just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to smalltime vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman’s first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there’s really only one episode that bears scrutiny now, in light of more recent events: Goldman’s disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an “investment trust.” Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investmenttrust game late, then jumped in with both feet and went hogwild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund — which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah — which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn’t hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled “In Goldman Sachs We Trust,” the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leveragebased investment. The trusts, he wrote, were a major cause of the market’s historic crash; in today’s dollars, the losses the bank suffered totaled $475 billion. “It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity,” Galbraith observed, sounding like Keith Olbermann in an ascot. “If there must be madness, something may be said for having it on a heroic scale.”

BUBBLE #2 Tech Stocks

Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country’s wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor’s assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm’s mantra, “long-term greedy.” One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. “We gave back money to ‘grownup’ corporate clients who had made bad deals with us,” he says. “Everything we did was legal and fair — but ‘long-term greedy’ said we didn’t want to make such a profit at the clients’ collective expense that we spoiled the marketplace.”

But then, something happened. It’s hard to say what it was exactly; it might have been the fact that Goldman’s cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And “what Rubin thought,” mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin’s complete and total failure to regulate his
old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren’t much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn’t know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman’s later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry’s standards of quality control.

“Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public,” says one prominent hedge-fund manager. “The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash.” Goldman completed the snow job by pumping up the sham stocks: “Their analysts were out there saying Bullshit.com is worth $100 a share.”

The problem was, nobody told investors that the rules had changed. “Everyone on the inside knew,” the manager says. “Bob Rubin sure as hell knew what the underwriting standards were. They’d been intact since the 1930s.”

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. “In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future.”

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called “laddering,” which is just a fancy way of saying they manipulated the share price of new offerings. Here’s how it works: Say you’re Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You’ll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a “road show” to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let’s say Bullshit.com’s starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO’s future, knowledge that wasn’t disclosed to the day trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company’s price, which of course was to the bank’s benefit — a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

“Goldman, from what I witnessed, they were the worst perpetrator,” Maier said. “They totally fueled the bubble. And it’s specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in.” In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was “spinning,” better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those “hot” opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit’s new shareholders by diverting cash that should have gone to the company’s bottom line into the private bank account of the company’s CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman’s board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco’s Dennis Kozlowski and Enron’s Ken Lay. Goldman angrily denounced the report as “an egregious distortion of the facts” — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. “The spinning of hot IPO shares was not a harmless corporate perk,” then-attorney general Eliot Spitzer said at the time. “Instead, it was an integral part of a fraudulent scheme to win new investment-banking business.”

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn’t the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman’s mantra of “long-term greedy” vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else’s Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America’s recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that “I’ve never even heard the term ‘laddering’ before.”)

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent —they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 The Housing Craze

Goldman’s role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren’t in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those shitty mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con’s mortgage on its books, knowing how likely it was to fail. You can’t write these mortgages, in other words, unless you can sell them to someone who doesn’t know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the shitty ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance — known as credit default swaps — on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won’t.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated — and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

More regulation wasn’t exactly what Goldman had in mind. “The banks go crazy — they want it stopped,” says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. “Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped.”

Clinton’s reigning economic foursome — “especially Rubin,” according to Greenberger — called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 11,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn’t end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities — a third of which were sub-prime — much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation — no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody’s and Standard & Poor’s, rated 93 percent of the issue as investment grade. Moody’s projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners — old people, for God’s sake — pretending the whole time that it wasn’t grade D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. “The mortgage sector continues to be challenged,” David Viniar, the bank’s chief financial officer, boasted in 2007. “As a result, we took significant markdowns on our long inventory positions … However, our risk bias in that market was to be short, and that net short position was profitable.” In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

“That’s how audacious these assholes are,” says one hedge fund manager. “At least with other banks, you could say that they were just dumb — they believed what they were selling, and it blew them up. Goldman knew what it was doing.”

I ask the manager how it could be that selling something to customers that you’re actually betting against — particularly when you know more about the weaknesses of those products than the customer — doesn’t amount to securities fraud.

“It’s exactly securities fraud,” he says. “It’s the heart of securities fraud.”

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million — about what the bank’s CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm’s payroll jumped to $16.5 billion — an average of $622,000 per employee. As a Goldman spokesman explained, “We work very hard here.”

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down — and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 $4 a Gallon

By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn’t leave much to sell that wasn’t tainted. The terms junk bond, IPO, sub-prime mortgage and other once-hot financial fare were now firmly associated in the public’s mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years — the notion that housing prices never go down — was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a “flight to commodities.” Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be “very helpful in the short term,” while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a “traditional speculator,” who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC’s oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren’t the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman’s argument. It issued the bank a free pass, called the “Bona Fide Hedging” exemption, allowing Goldman’s subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that’s likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. “I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC,” says Greenberger, “and neither of us knew this letter was out there.” In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

“I had been invited to a briefing the commission was holding on energy,” the staffer recounts. “And suddenly in the middle of it, they start saying, ‘Yeah, we’ve been issuing these letters for years now.’ I raised my hand and said, ‘Really? You issued a letter? Can I see it?’ And they were like, ‘Duh, duh.’ So we went back and forth, and finally they said, ‘We have to clear it with Goldman Sachs.’ I’m like, ‘What do you mean, you have to clear it with Goldman Sachs?'”

The CFTC cited a rule that prohibited it from releasing any information about a company’s current position in the market. But the staffer’s request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman’s current position. What’s more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman’s capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index — which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil — became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly “long only” bettors, who seldom if ever take short positions — meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it’s terrible for commodities, because it continually forces prices upward. “If index speculators took short positions as well as long ones, you’d see them pushing prices both up and down,” says Michael Masters, a hedge fund manager who has helped expose the role of investment banks in the manipulation of oil prices. “But they only push prices in one direction: up.”

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an “oracle of oil” by The New York Times, predicted a “super spike” in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn’t know when oil prices would fall until we knew “when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives.”

But it wasn’t the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country’s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees’ Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn’t just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. “The highest supply of oil in the last 20 years is now,” says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. “Demand is at a 10-year low. And yet prices are up.”

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. “I think they just don’t understand the problem very well,” he says. “You can’t explain it in 30 seconds, so politicians ignore it.”

BUBBLE #5 Rigging the Bailout

After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman’s last real competitors — collapse without intervention. (“Goldman’s superhero status was left intact,” says market analyst Eric Salzman, “and an investment banking competitor, Lehman, goes away.”) The very next day, Paulson green-lighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman’s primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict of interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all this — the AIG bailout, the swift approval for its bank holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn’t a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. “In the past it was an implicit advantage,” says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. “Now it’s more of an explicit advantage.”

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 — with its $1.3 billion in pretax losses — off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 — which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. “They cooked those first quarter results six ways from Sunday,” says one hedge fund manager. “They hid the losses in the orphan month and called the bailout money profit.”

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new “stress test” for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn’t pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. “They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after,” says Michael Hecht, a managing director of JMP Securities. “The government came out and said, ‘To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before.”

And here’s the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman’s annual report, the low taxes are due in large part to changes in the bank’s “geographic earnings mix.” In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage — but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. “With the right hand out begging for bailout money,” he said, “the left is hiding it offshore.”

BUBBLE #6 Global Warming

Fast-forward to today. It’s early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm’s co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade.

The new carbon credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.

Here’s how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy “allocations” or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they’re the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank’s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson’s report argued that “voluntary action alone cannot solve the climate change problem.” A few years later, the bank’s carbon chief, Ken Newcombe, insisted that cap-and-trade alone won’t be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, “We’re not making those investments to lose money.”

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There’s also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy futures market?

“Oh, it’ll dwarf it,” says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won’t we all be saved from the catastrophe of global warming? Maybe — but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it’s even collected.

“If it’s going to be a tax, I would prefer that Washington set the tax and collect it,” says Michael Masters, the hedge fund director who spoke out against oil futures speculation. “But we’re saying that Wall Street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine.”

Cap-and-trade is going to happen. Or, if it doesn’t, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It’s not always easy to accept the reality of what we now routinely allow these people to get away with; there’s a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can’t really register the fact that you’re no longer a citizen of a thriving first-world democracy, that you’re no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going.

This article originally appeared in the July 9-23, 2009 of Rolling Stone.

Further Reading:

Invasion of the Home Snatchers, by Matt Taibbi (2010)

The Feds vs. Goldman, By Matt Taibbi (2010)

Wall Street’s Big Win, by Matt Taibai (2010)

Apocalypse, New Jersey: A Dispatch from America’s Most desperate Town, by Matt Taibbi (2013)

Taibblog: Commentary on Politics and the Economy by Matt Taibbi

Apocalypse, New Jersey: A Dispatch From America’s Most Desperate Town

No jobs, no hope – and surveillance cameras everywhere. The strange, sad story of Camden

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BY December 11, 2013

The first thing you notice about Camden, New Jersey, is that pretty much everyone you talk to has just gotten his or her ass kicked.

Instead of shaking hands, people here are always lifting hats, sleeves, pant legs and shirttails to show you wounds or scars, then pointing in the direction of where the bad thing just happened.

“I been shot six times,” says Raymond, a self-described gangster I meet standing on a downtown corner. He pulls up his pant leg. “The last time I got shot was three years ago, twice in the femur.” He gives an intellectual nod. “The femur, you know, that’s the largest bone in the leg.”

“First they hit me in the head,” says Dwayne “The Wiz” Charbonneau, a junkie who had been robbed the night before. He lifts his wool cap to expose a still-oozing red strawberry and pulls his sweatpants down at the waist, drawing a few passing glances. “After that, they ripped my pockets out. You can see right here. . . .”

Even the cops have their stories: “You can see right here, that’s where he bit me,” says one police officer, lifting his pant leg. “And I’m thinking to myself, ‘I’m going to have to shoot this dog.'”

“I’ve seen people shot and gotten blood on me,” says Thomas Bayard Townsend III, a friendly convicted murderer with a tear tattoo under his eye. “If you turn around here, and your curiosity gets the best of you, it can cost you your life.”

Camden is just across the Delaware River from the brick and polished cobblestone streets of downtown Philadelphia, where oblivious tourists pour in every year, gobbling cheese steaks and gazing at the Liberty Bell, having no idea that they’re a short walk over the Ben Franklin Bridge from a full-blown sovereignty crisis – an un-Fantasy Island of extreme poverty and violence where the police just a few years ago essentially surrendered a city of 77,000.

All over America, communities are failing. Once-mighty Rust Belt capitals that made steel or cars are now wastelands. Elsewhere, struggling white rural America is stocking up on canned goods and embracing the politics of chaos, sending pols to Washington ready to hit the default button and start the whole national experiment all over again.

But in Camden, chaos is already here. In September, its last supermarket closed, and the city has been declared a “food desert” by the USDA. The place is literally dying, its population having plummeted from above 120,000 in the Fifties to less than 80,000 today. Thirty percent of the remaining population is under 18, an astonishing number that’s 10 to 15 percent higher than any other “very challenged” city, to use the police euphemism. Their home is a city with thousands of abandoned houses but no money to demolish them, leaving whole blocks full of Ninth Ward-style wreckage to gather waste and rats.

It’s a major metropolitan area run by armed teenagers with no access to jobs or healthy food, and not long ago, while the rest of America was ranting about debt ceilings and Obamacares, Camden quietly got pushed off the map. That was three years ago, when new governor and presumptive future presidential candidate Chris Christie abruptly cut back on the state subsidies that kept Camden on life support. The move left the city almost completely ungoverned – a graphic preview of what might lie ahead for communities that don’t generate enough of their own tax revenue to keep their lights on. Over three years, fires raged, violent crime spiked and the murder rate soared so high that on a per-capita basis, it “put us somewhere between Honduras and Somalia,” says Police Chief J. Scott Thomson.

“They let us run amok,” says a tat-covered ex-con and addict named Gigi. “It was like fires, and rain, and babies crying, and dogs barking. It was like Armageddon.”

Not long ago, Camden was everything about America that worked. In 1917, a report counted 365 industries in Camden that employed 51,000 people. Famous warships like the Indianapolis were built in Camden’s sprawling shipyards. Campbell’s soup was made here. Victor Talking Machine Company, which later became RCA Victor, made its home in Camden, and the city once produced a good portion of the world’s phonographs; those cool eight-hole pencil sharpeners you might remember from grade school – they were made in Camden too. The first drive-in movie was shown here, in 1933, and one of the country’s first planned communities was built here by the federal government for shipyard workers nearly a century ago.

But then, in a familiar narrative, it all went to hell. RCA, looking, among other things, for an escape from unionized labor, moved many of its Camden jobs to Bloomington, Indiana. New York Shipbuilding closed in the Sixties, taking 7,000 jobs with it. Campbell’s stuck it out until the Nineties, when it closed up its last factory, leaving only its corporate headquarters that today is surrounded by gates high and thick enough to keep out a herd of attacking rhinoceroses.

Once the jobs started to disappear, racial tensions rose. Disturbances broke out in 1969 and 1971, the first in response to a rumor about the beating of a young black girl by police, the second after a Hispanic man named Rafael Gonzales really was beaten by two officers. Authorities filed charges against the two cops in that case, but they initially kept their jobs. The city exploded, with countless fires, three people shot, 87 injured. “Order” was eventually restored, but with the help of an alarmist press, the incidents solidified in the public’s mind the idea that Camden was a seething, busted city, out of control with black anger.

With legal business mostly gone, illegal business took hold. Those hundreds of industries have been replaced by about 175 open-air drug markets, through which some quarter of a billion dollars in dope moves every year. But the total municipal tax revenue for this city was about $24 million a year back in 2011 – an insanely low number. The police force alone in Camden costs more than $65 million a year. If you’re keeping score at home, that’s a little more than $450 a year in local taxes paid per person, if you only count people old enough to file tax returns. That’s less than half of the $923 that the average New Jersey resident spends just in sales taxes every year.

The city for decades hadn’t been able to pay even for its own cops, so it funded most of its operating budget from state subsidies. But once Christie assumed office, he announced that “the taxpayers of New Jersey aren’t going to pay any more for Camden’s excesses.” In a sweeping, statewide budget massacre, he cut municipal state aid by $445 million. The new line was, people who paid the taxes were cutting off the people who didn’t. In other words: your crime, your problem.

The “excesses” Christie was referring to included employment contracts negotiated by the police union. A charitable explanation of the sweet deal Camden gave its cops over the years was that the police union had an unusually strong bargaining position. “Remember, this was the only police force in South Jersey whose members regularly had to risk their lives,” says retired Rutgers-Camden professor Howard Gillette. The less-charitable say these deals were the result of a hey-it-isn’t-our-money-anyway subsidy-mongering. Whatever the cause, until Christie came along, the Camden police had a relatively rich contract, with overtime up the wazoo and paid days off on birthdays. If a cop worked an overnight, he got a 12 percent “shift enhancement” bump, which made sense because of the extreme danger. But an officer who clocked in at noon under the same agreement still got an extra four percent. “Every shift was enhanced,” says a spokesman for the new department.

But a big reason that Christie hit Camden’s police unions so hard was simply that he could. He’d wanted to go after New Jersey urban schools, which he derided as “failure factories.” But a series of state Supreme Court rulings based on a lawsuit originally filed on behalf of students in Camden and three other poor communities in the Eighties – Abbott v. Burke, a landmark case that would mandate roughly equal per-pupil spending levels across New Jersey – made cuts effectively impossible. The courts didn’t offer similar protection to police budgets, though. By New Year’s 2011, the writing was on the wall. After Christie announced his budget plans, panicked city leaders got together, pored over their books and collective-bargaining agreements, and realized the unthinkable was about to happen. Camden, a city that even before any potential curtailing of state subsidies made Detroit or East St. Louis seem like Martha’s Vineyard, was about to see its police force, one of its biggest expenditures, chopped nearly in half.

On January 18th, 2011, the city laid off 168 of its 368 police officers, kicking off a dramatic, years-long, cops-versus-locals, house-to-house battle over a few square miles of North American territory that should have been national news, but has not been, likely because it took place in an isolated black and Hispanic ghost town.

After the 2011 layoffs, police went into almost total retreat. Drug dealers cheerfully gave interviews to local reporters while slinging in broad daylight. Some enterprising locals made up T-shirts celebrating the transfer of power from the cops back to the streets: JANUARY 18, 2011 – it’s our time. A later design aped the logo of rap pioneers Run-DMC, and “Run-CMD” – “CMD” stands both for “Camden” and “Cash, Money, Drugs” – became the unofficial symbol of the unoccupied city, seen in town on everything from T-shirts to a lovingly rendered piece of wall graffiti on crime-ridden Mount Ephraim Avenue.

Cops started calling in sick in record numbers, with absenteeism rates rising as high as 30 percent over the rest of 2011. Burglaries rose by a shocking 65 percent. The next year, 2012, little Camden set a record with 67 homicides, officially making it the most dangerous place in America, with 10 times the per-capita murder rate of cities like New York: Locals complained that policing was completely nonexistent and the cops were “just out here to pick up the bodies.” The carnage left Camden’s crime rate on par with places like Haiti after its 2010 earthquake, and with other infamous Third World hot spots, as police officials later noticed to their dismay when they studied U.N. statistics.

At times in 2011 and 2012, the entire city was patrolled by as few as 12 officers. Police triaged 911 calls like an overworked field hospital, sometimes giving up on property and drug crimes altogether, focusing their limited personnel mainly on gun crimes committed during daylight hours. Heading into 2013, Camden was sliding further and further out of police control. “If Camden was overseas, we’d have sent troops and foreign aid,” says Chuck Wexler of the Police Executive Research Forum, a guy Chief Thomson refers to as his “wartime consigliere.”

Then, this year, after two years of chaos, Christie and local leaders instituted a new reform, breaking the unions of the old municipal police force and reconstituting a new Metro police department under county control. The old city cops were all cut loose and had to reapply for work with the county, under new contracts that tightened up those collective-bargaining “excesses.” The new contracts chopped away at everything from overtime to uniform allowances to severance pay, cutting the average cost per officer from $182,168 under the city force to $99,605 in the county force. As “the transfer” from a municipal police force to a county model went into effect last May, state money began flowing again, albeit more modestly. Christie promised $10 million in funding for the city and the county to help the new cops. Police began building up their numbers to old levels.

Predictably, the new Camden County-run police began to turn crime stats in the right direction with a combination of beefed-up numbers, significant investments in technology, and a cheaper and at least temporarily de-unionized membership. Whether the entire thing was done out of economic necessity or careful political calculation, Christie got what he wanted – county-controlled police forces seemed to be his plan from the start for places like Camden.

In fact, just a few months ago, Christie publicly touted Camden’s new county force as the model he hopes to employ for Trenton, and perhaps some of Jersey’s other crime-sick cities. (For a state with one of the highest median household incomes in America, New Jersey also has four of the country’s biggest urban basket cases in Camden, Trenton, Paterson and Newark.) Local county officials, echoing Christie, called Camden the “police model of the future for New Jersey.”

In recent months, Christie has visited Camden several times, making it plain that he puts the daring 2011 gambit here in his political win column. And not everyone in Camden disagrees. One ex-con I talked to in the city surprised me by saying he liked what Christie had done, and compared Camden’s decades-long consumption of state subsidies to the backward incentive system he’d seen in prison. “In prison, you can lie in your bed all day long and get credit for good time toward release,” he said, shaking his head. “You should have to do something other than lie there.”

No matter what side of the argument you’re on, the upshot of the dramatic change was that Camden would essentially no longer be policing itself, but instead be policed by a force run by its wealthier and whiter neighbors, i.e., the more affluent towns like Cherry Hill and Haddonfield that surround Camden in the county. The reconstituted force included a lot of rehires from the old city force (many of whom had to accept cuts and/or demotions in order to stay employed), but it also attracted a wave of new young hires from across the state, many of them white and from smaller, less adrenaline-filled suburban jurisdictions to the north and east.

And whereas the old city police had a rep for not wanting to get out of the car in certain bad neighborhoods, the new force is beginning to acquire an opposite rep for overzealousness. “These new guys,” complains local junkie Mark Mercado, “not only will they get out of the car, they’ll haul you in just for practice.”

Energized county officials say they have a plan now for retaking Camden’s streets one impenetrable neighborhood at a time, using old-school techniques like foot patrols and simple get-to-know-you community interactions (new officers stop and talk to residents as a matter of strategy and policy). But the plan also involves the use of space-age cameras and military-style surveillance, which ironically will turn this crumbling dead-poor dopescape of barred row homes and deserted factories into a high-end proving ground for futuristic crowd-control technology.

Beginning in 2011, when the city first installed a new $4.5 million command center – it has since been taken over by the county – police here have gained a series of what they call “force multipliers.” One hundred and twenty-one cameras cover virtually every inch of sidewalk here, cameras that can spot a stash in a discarded pack of Newports from blocks away. Police have a giant 30-foot mobile crane called SkyPatrol they can park in a neighborhood and essentially throw a net over six square blocks; the ungainly Japanese-robot-style device can read the heat signature of a dealer with a gun sitting in total darkness. There are 35 microphones planted around the city that can instantly detect the exact location of a gunshot down to a few meters (and just as instantly train cameras on escape routes). Planted on the backs of a fleet of new cruisers are Minority Report-style scanners that read license plates and automatically generate warning letters to send to your mom in the suburbs if you’ve been spotted taking the Volvo registered in her name to score a bag of Black Magic on 7th and Vine.

The streets have noticed the new technology. Dealers and junkies alike have even begun to ascribe to the police powers they don’t actually have. “They have facial-recognition on cars, man,” says Townsend, the homeless ex-con with the murder sheet. “So that when you go by ’em, they see if you are wanted for anything.”

For sure, there’s bitterness on streets in Camden over the fact that the city was essentially abandoned three years ago. But misery loves company, and this is a place where even the police seem shellshocked. Some of them, you get the sense, feel abandoned too – cut off from the rest of America just like everyone else here. Very few of them have the pretend-macho air you get from hotshot cops in other tough cities. Camden police will come straight out and tell you stories about getting their faces kicked in and/or beaten half to death. And they all talk about this place with a kind of awe, often shaking their heads and whispering through the worst stories.

“The kid happened to be on a bike,” begins a 20-year police vet named John Martinez, closing his eyes as he remembers a story from July 2011. He was riding with a rookie partner that day. The city at the time was still in near-total chaos, with drug dealing mostly going unchallenged by the police. But on that hot July afternoon, Martinez spotted a teenager doing a hand-to-hand on Grant Street, shrugged, and decided to pursue anyway.

“[The dealer] saw me walking up to him. I told the rookie to stay in the car, because 90 percent of the time, they run.” The kid started pedaling away. The rookie gave chase in the car, then stopped, jumped out and went after him on foot. Martinez started to follow, but then looked back at the car and realized his newbie partner had left it running.

“I started to run with him,” he said, “but I thought, ‘Yeah, this’ll be gone.'”

By this, Martinez meant the car. Last summer, in fact, a male-female pair of suburban junkies stole a squad car parked right in front of police headquarters, ran over the cop it belonged to (he survived, but his leg was shattered, his career over), tore across the bridge into Philly pursued by a phalanx of Camden cops (“You can imagine the public’s bewilderment, seeing police cars chasing a police car,” recalls Thomson), and crashed in Philly after a long chase – only to flee on foot, double back, and steal another car, this time a Philadelphia police cruiser.

“Junkie Bonnie and Clyde” were eventually caught, but the point is, you can’t leave a car running in Camden, especially a police car. So on that July day, Martinez went back to his cruiser instead of helping out his partner. Eventually, another experienced officer showed up, also toting a rookie partner. The two rookies ended up catching the suspect on foot and were trying to get him cuffed when Martinez started to sense a problem. A crowd of about a hundred formed in the blink of an eye and started pelting the cops with bottles and rocks. Martinez ended up chasing onto a porch a teenager who’d thrown a bottle.

Next thing Martinez knew, he was jumped by “women, older women, men, kids. . . . As soon as I grabbed the kid, everybody started trying to forcibly take him from me. They’re punching me in the back, on the side of the head. . . . ”

In the struggle, Martinez and the kid ended up crashing backward through the porch railing and tumbling to the street, where Martinez suddenly found himself looking up at 100 furious people, with an angry teenager on top of him, reaching for the gun in Martinez’s thigh holster. The three other cops rushed to his aid – the two rookies making another mistake in the process. They’d cuffed the original suspect and put him in the back of the car, but in the rush to save Martinez, they again left the cruiser unlocked. Backup arrived a few moments later, but when Martinez got back to his feet, he realized the crowd had left them all a big surprise.

“We go back to the original police car where that drug-dealing suspect was, and the back door is open and he’s gone,” Martinez recounts. The neighborhood had taken the suspect back, cuffs and all. “But I’ll take that.”

The moral of the story: Arrests in North Camden, the most stricken part of town, sometimes just don’t take. Many cops here have stories about busts that either didn’t happen or almost didn’t happen when the streets made an opposite ruling. “Ninth and Cedar. I remember chasing a guy a block and a half – he had a Tec-9,” says Joe Wysocki, a quiet, soft-spoken 20-year Camden vet. “Handcuffing him, I remember looking up and there were, like, 60 people around me. I threw the guy into the car, jumped in the back seat with him, and [my partner] took off.”

“Telling the prisoner, ‘Move over,'” joked another cop in the room.

“Yeah,” says Wysocki. “Sometimes you just have to scoop and run.”

Nobody in North Camden calls the police. When the county installed the new “ShotSpotter” technology that pinpoints the locations of gunshots, they discovered that 30 percent of all shootings in the city go unreported, many of them from North Camden. “North Camden would generally like to police itself,” says Thomson. “Rather than getting a call of an adult who had assaulted a child, generally you’ll get a call to send an ambulance and a police officer to the corner of 7th and York because there’s a person laying there beaten nearly to death with chains.”

Late October 2013. It’s nearly three years after the layoffs. A trio of squad cars flies through North Camden. Over the police radio, a voice chimes in from the RTOIC, or Real-Time Tactical Operational Intelligence Center, a super-high-tech, Star Trek-ish bridge of giant screen displays back at the metaphorical Green Zone that is police headquarters. There, a team of police analysts monitors the city using six different advanced technologies, watching those 121 camera feeds via 10 42-inch monitors and six different listening stations tracking cruisers by GPS. Somebody back there apparently spotted a drug deal through a camera near where this police convoy is cruising.

“Black male, white shirt, bald head,” the radio crackles. “White shirt, bald head.”

The cars take off like rockets and screech to a halt at exactly that same spot where John Martinez once almost punched his ticket, the 400 block of Grant Street. We’re right in front of that same house. The wooden railing through which Martinez crashed backward two years ago has been replaced by an iron one, and leaning against it is a similar crowd of angry onlookers, glaring at the cops. Around the corner, near the house with the new porch railing, a young black dude in a white shirt stands surrounded by police, trying not to make sudden moves.

About 10 yards off from the “suspect,” barking loudly and standing next to his handler-partner, Sgt. Zack James, is Zero, a black Czech shepherd police dog. Everything connected with crime in Camden breaks some kind of record, and Zero is no exception – he’s dragged down 65 suspects in foot chases, something only one other canine in state-police history has done. Zero is friendly enough in nonworking situations (he even drops to his back and sticks his tongue out to the command “Cute and cuddly!”), but the department’s male cops still cover their balls reflexively, even from great distances, if they see him loose in the parking lot.

Sgt. James, a burly officer who lives and works with Zero full-time, seems like he’s ready to do a Lambeau leap in celebration, if only someone would try to run on his dog and become number 66. But in this case, they’ve got the wrong guy. There’s a brief interrogation, the guy walks away slowly, and dog and humans pile back into their respective cars and screech out at high speeds, disappearing as quickly as they came.

Any reporter who’s been embedded in Iraq or Afghanistan will find these scenes extremely familiar – high-speed engagements backed by top-end surveillance technology, watched by crowds whose reactions range from bemusement to rage to eye-rolling disappointment. In that latter category is Bryan Morton, a fortysomething community leader of sorts who still lives in the North Camden house where he was born. Morton went away in his youth for eight and a half years for armed robbery and drug dealing, got out, went straight, got his college degree, worked for years running local re-entry programs, founded a North Camden Little League, and had things looking up for himself, before he was laid off last May. Fortunately, he’d bought a food cart six years before that, which he left in his backyard as a backup plan; he now drives across town before dawn every day, setting up next to the McDonald’s in Camden’s pinhead-size “downtown.”

Handsome, articulate, charming, Morton had just been robbed the day I met him. The guy he hired to fix up his cart bolted after the last payment, taking big chunks of his cart’s sheet metal with him. There had also been another murder in North Camden the day before, a drug killing a few blocks up from Morton’s house. Asked how bad things have been in North Camden since the 2011 layoffs, he laughs faintly. “Hell, the police gave up on this neighborhood long before that,” he says, hoisting the cart onto his pickup truck’s trailer hitch in the predawn light in front of his house. For years, he says, cops would drive through his block once every half-hour or so, pretending to police the place, but they wouldn’t stop unless they had to.

“We know you’re afraid to get out of the car,” he says. “We know that.”

North Camden is one of a few neighborhoods in the city that still feels less policed than occupied. There’s even an infamous brick housing-project tower here called Northgate 1 where the middle floors carry the nickname “Little Iraq,” for the residents’ reputation for being not quite under government control. In fact, when the state raided the tower to serve warrants a few years back, they were so concerned with ground-level resistance that they invaded from the sky, like soldiers in Afghanistan, rappelling onto the roof by helicopter. The state police believed they’d sent a message, but there are locals who reacted to the Rambo-commando episode with the same you’ve-gotta-be-kidding-me incredulity you see on faces of kids surrounded by multiple squad cars and millions of dollars in technology, busted for loitering or a few lids of weed. “They pussies,” is how one Camdenite put it.

Thomson, the city’s energetic young police chief – he carries an uncanny resemblance to Homeland lead actor Damian Lewis – is trying to provide a counterargument to the alien-occupier vibe. His plan is to stabilize the city with foot patrols one neighborhood at a time. On an October afternoon he drives me through Fairview, that once-dazzling planned city full of brick homes built for New York Shipbuilding workers nearly a century ago.

A little overgrown still, the place now looks, well, nice, with few of the rat-infested vacant homes and factories that dominate much of the rest of the city. Conspicuously, there’s no obvious drug traffic here. “A year ago, this space was controlled by gangsters,” Thomson says proudly. “Now you have kids playing there.”

He nods in the direction of a street corner, where a policeman in a paramilitary-style uniform, all steel-blue with a baseball-style cap, stands on guard. There’s one of these sentries every few hundred feet, each seemingly within eyesight of the other, each standing bolt upright and saluting military-style when the chief drives by. We watch as a few elderly black pedestrians amble by, and if you listen carefully you can catch the street patrolmen diligently offering RoboCop-ian greetings to each one as they pass.

The plan is to deploy more and more of these getting-to-know-you details, moving neighborhood by neighborhood, working their way up to places like North Camden, where the police will eventually answer once and for all the question of whether they will lay it all on the line for America’s most unsafe neighborhood.

Thomson is engaging and smart, and has the infectious enthusiasm of a politician, except that he seems sincere. Driving through Camden, watching these grim scenes of pseudo-occupation that in this part of the world count as progress, my overwhelming feeling was a weird kind of sympathy: None of this shit is on him. In another life, actually, he and someone like Bryan Morton might have been co-workers, or political running mates, since both men – the chief with his foot patrols, Morton with his pan-Camden Little League – say they’re working toward the same thing: trying to create safe places for people to go in a city that historically isn’t terribly safe even across the street from police headquarters.

But Thomson’s optimism is based, again, upon the assumption that if you create enough safe streets and parks in a place like Camden, jobs will return, and things will somehow go back to normal. But what if the jobs stay in China, Mexico, Indonesia? Then the high-tech security efforts in cities like this start to feel like something other than securing a few streets for future employers. Then it’s the best security money can buy, but just for security’s sake, turning a scene like Camden into a very expensive, very dark nihilistic comedy: a perpetual self-occupation. Thomson clearly doesn’t believe this. He has hope – he’s as intensely focused on development gains like the opening of a new $62 million Rutgers-Camden nursing building as he is about locking people up – but even he at times can’t help but sound like a military commander charged with recapturing alien territory.

“What you lose in one month, it takes five or six months to get back,” he says, referring to the footing the police lost after the layoffs. “After what we went through, that’s five to seven years we don’t have.”

Early afternoon, I’m parked near a little stretch of grass and chain-link in the shadow of the “Little Iraq” Northgate 1 tower. I’m riding with Kevin Lutz, a one-time homicide detective from the old municipal police days who’s just become a sergeant in the new force. Lutz doesn’t have any issues with getting out of any cars. In fact, he seems to get along with most everyone, even the local crew chiefs. We passed one earlier, a ripped character with a shaved head and a bushy Sunni beard who, word is, someone from another block had incompetently tried to assassinate the day before.

“Hey, what’s up?” Lutz asks him. “How’s your health?”

“I’m all right, man, I’m all right,” the guy says, waving.

Lutz smiles and drives on. “He took one right in the chest yesterday, center mass,” he says. “It was just buckshot, though. But check him out, walking around the next day, like it’s nothing.”

Later, we’re near the towers. Lutz spots a white girl sitting on a brick wall ringing the Northgate 1 parking lot, wobbling, then suddenly falling backward over onto her head. He drives over and the girl, obviously a junkie, gets up and is walking around, disoriented. She starts spinning an impossible-to-follow tale about her friend being attacked in adjacent Northgate Park, a story that within minutes changes to a new story about that same friend just heading toward Northgate Park to get some chicken. The constant in the story is that she needs to get to Northgate Park. There’s nowhere to get chicken in Northgate Park, but you can get all the dope you want.

“Hey, go home,” says Lutz. “OK? There’s nothing good in that direction. We both know what’s going on.”

“But I’ve got to find my friend!” the girl screams.

“Go home,” Lutz repeats, driving off.

She starts in the right direction, back toward Philly, but in the rearview mirror Lutz sees her doing a 180 and heading back to Northgate. He casually turns around. About 85 percent of the heroin customers in this city are like this: young, white and from the suburbs. At all hours of the day, you can see junkies plodding across the Ben Franklin Bridge, usually carrying a knapsack that contains a set of works and, very often, a “Homeless and Hungry” sign they’ve just used to panhandle in Philly. The ones who don’t come on foot come by car, at all hours of the day, and they come in such huge numbers that police say they couldn’t deal with them all if they had a force of 5,000.

This is another potential hole in the policing plan: The fact that broken suburbs – full of increasingly un- or underemployed young people – send a seemingly limitless supply of customers for Camden’s drug trade. The typical profile is a suburban kid who tore an ACL or got in a car accident back in high school, got an Oxy prescription, and within a few years ended up here. This city, incidentally, has a reputation for having the best dope on the East Coast, which partly explains the daily influx of white junkies (“Dope,” jokes Morton, “is a Caucasian drug”). In fact, when Camden made the papers a few years back after a batch of Fentanyl-laced heroin caused a series of fatalities here, it attracted dope fiends from hundreds of miles away. “People were like, ‘Wow, I’ve gotta try that,'” says Adrian, a recovering addict from nearby Logan Township who used to come in from the suburbs to score every day and is now here to visit a nearby methadone clinic. “Yeah,” says her friend Adam, another suburban white methadone commuter. “If someone dies at a dope set, that’s where you want to get your dope.”

While I was talking to Adam and Adrian in the city’s lone McDonald’s, an ambulance showed up – somebody OD’d in the parking lot. Adrian craned her head and nodded, watching the paramedics. She says she and Adam often sit at the city transportation center in the mornings and watch the steady flow of fights and drug-induced seizures.

“The thing about Camden is, when you come back here, you can always say, ‘At least my life is better than what I thought,'” says Adrian. Two minutes later, she’s in full McNod, head all the way back, eyes completely closed, zoned out from a methadone dose she got at a nearby clinic.

A decade or so ago, you wouldn’t have seen white people just hanging out in downtown Camden. Now they’re here by the hundreds every day. “There wasn’t no white people up in this motherfucker,” says Raymond, the self-described gangster who was shot six times. Now, he says, the city is full of white kids on dope. “The last few years, it’s like an epidemic surge,” he says.

That’s the crazy thing about this city. The Camden story was originally a controversial political effort to isolate urban crime and slash municipal spending by moving political power out of dying nonwhite cities. And they do it, this radical restructuring backed by the best in Baghdad-style security technology, and for a second or two it looks like it’s working – only the whole thing might be rendered moot in the end by the collapse of the rest of America. All over the country, we’ve been so busy arguing over who’s productive and who isn’t that we might not be noticing that the whole ship is going down. There’s no lesson in any of it, just a giant mess that still isn’t cleaned up.

Back in Northgate with Sgt. Lutz, we’ve circled around now, and Lutz shouts at the girl, who’s made it all the way to the park.

“Hey, I told you to go home!” he shouts.

“But I need to get some fucking chicken!” she shouts back.

Lutz laughs, shakes his head, drives off, nodding toward Northgate Park.

“Best chicken in Camden,” he says.

This story is from the December 19th, 2013 – January 2nd, 2014 issue of Rolling Stone.

From The Archives Issue 1198: December 19, 2013

Read more: http://www.rollingstone.com/culture/news/apocalypse-new-jersey-a-dispatch-from-americas-most-desperate-town-20131211#ixzz3mgb9fNZz
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