john: what's up with detroit? can this happen to your town? that's our show tonight. ♪ >> and now john stossel. ♪ john: detroit was once the richest city in america. i was three years old and. that was the 1950's. now it's the biggest u.s. city ever to declare bankruptcy. so what happened? our guests tonight have some clues. first, fox news reporter works in detroit and just wrote, detroit, an americanutopsy. an autopsy, one examines the dead body and tries to find out what killed him. detroit isn't that exactly. what killed the trust? >> would kill the charge, racial conflict of detroit. slav kl detroit. corruption children. it seems like that is what has become the american way because detroit is not alone. what is baltimore going to do, atlanta, l.a. john: detroit is and worse shape. worse politicians, morenions. the automaker collapsed. it was in the politicians' fault. it was just the big three crashed. >> it wasll of them. one industry town. we were rich. we thought it would never end. everybody put their hand in the till from management to politicians to unions. you could punch and your body will he went drinking. we blew it. i know everyone is watching, not because you care, but your review will beike us. john: we want to see, maybe bankruptcy is the answer, but this may mean stiffing tohe people who were promised pensions. they may get $0.20 on the dollar >> i know. the golden age is over. we really just run it. or in a new era now. who even knows what money is worth. a promise, contract. pensioners might take a very bad it. it's what was left us, neglect, sloth, and ripping people off. the people didn't take it. who took it? >> detroit was perpetually on fire. >> we have 7,000 carsons per year. do the math. thirty days. we have a fire department where the alarm still working inside. holes in the booths. the engines we quarter. sometimes the engine show up and capump water. that's not the fault -- go ahead john: they took out the fire polls and sold the brass. >> scrap them. they did. gone. everything now is a personnel. john: the city did manage to build a new $60 million building to house fire department officials. you tried to confront the deputy fire commissioner about that. he was not eager to talk. >> deputy commissioner. >> and not sure if he was talking to me or you. >> you're in charge of the maintenance of these fire houses. responding $60 million on a new public safety headquarters. the house the visit today should be condemned. how do you respond? >> what you tell the truth. john: in this case this man was fired. >> as he should've been. you don't get to stop people around because your ampule they ask you, especially in your official capacity as the man responsible for making sure hoes are clean and safe and not like some backwater or house into one of. out on now. is it is acceptable or you leave -- live? is it acceptable that night when one goes down and breaks for 15 hours. john: in detroit if you call 911 you can be sure the police will come. you interviewed one single woman living alone that had been robbed and was afraid to go inside her home because the thieves might still be there. she was waiting for the police. >> i called them an hou ago and they still have a gun here. >> they get the tv, the game machine, the laptop. one-and-a-ha hours and still no cops. cops arrived four hours later. they say they came as soon as they were assigned the call. john: you say setimes the whole system goes down, but even when the system as it down there just aren't enough cops or it's badly m managed. >> all of the above. it's badly managed. we don't have enough squad car sometimes to carry the cops around. the cars don't have computers in them. the cars don'tave radios and then. they use their cell phones. are you kidding me? imagine one of our ladies coast to work, comes on and someone has broken in. i want to muscle to show up and make sure she ses as she can get an ounce. we can't even do that. what do we do? what the citizens are in themselves. now it will all be our own police. john: it may work out better than relying on government. >> now we have this deal and florida. maybe we are thinking it didn't work out better. maybe we should leave policing to police. john: let's look at in a documentary about detroit it shows what parts of the city of lucknow -- city are like now. >> of firebomb. >> a lot of the antisocial behavior and violence is because communities a broken dn three people on interacve one another. in many cases they don't see themselves as a community even though they live next door to one another. >> is bad for other people. tess is just regular. it ain't nothing else. john: the documentary was made by andrew rodney who grew up in a suburb of detroit. you titled the film deforest. why? >> it means to take property from its rightful owner by force. we title did that because i cannot think of more accurate word to describe what is at the bill last 50 years in detroit. john: the politicians would say today, we have plan. we can build these clean new buildings with our friends here and use eminent dain to kick people out of their homes. >> yes. that happened many times. it happened with the pull town plan. gm. john: that was a neighborhood. lots of people live there. politicians sai it will put an auto pla in there. >> and they kicked out dozens of peop to make space. john: what makes deterred worse than other cities? >> it's just the first. it is the first city to experience a lot of the planning that went into a lot of cities. the federal home loan bank board was a national program, but it was first in detroit where there really start to build the neighborhoods around these federal subsidies which sprawled them out and also racially segregated them. >> the third highest income-x of any major city. yet there's no money. how can that be? >> i love to know where the money went, but better were the people went. when you pay the high income taxes, the only utility tax in the state, the highest car insurance, the hhest honors insurance, the school's stink and you get no police, you know what happens to the money, they hit a mile road. the only people left the people broke paying the highest income taxes. 10 percent of the dollar is $0.10. john: both of you talk about this a mile road. the title of the movie. you were tohe plan. what's the significance? >> well, it's been 8-lane ghway, but it might as well be a border between tto countries. is the dividing line between detroit and the northern suburb things politically, economilly -- john: rich and poor. >> pretty much. things on both side of the alliance and night and day difference. john: the politicns are going to improve the life of the poor building housing projects? this was another one of their grand schemes. once like brewster douglas housing project. what happened? >> what happened? exactly what happens when federal officials trying plan housing projects. it falls to pieces in a time and all. john: thank you, andrew and charlie. next, detroit's mayor darks -- 50 trips, night clubs, rented limos. taxpayers paid for it. what is up with detroit? >> unethical, illegal whe small mentality has to stop. ♪ john: detroit was once the most prosperous city in america. where did the money go? the fall of the big three did not help, but politicians made it worse, they squandered money. detrt's mayor is launched big projects like the people mover which turns out all the move people in one direction and not many is the thought. then there's a $350 million renaissance center and the very expensive jail. when the money ran out detroit started to decay, politicians said things like this. >> we shall go forward. ththe toward show again become e great city that is its destiny. john: 20 years later the mayor was still in office making similarromises. >> detroit is alive and well. rihanna not coming back. we're back. john: when people criticize him a call the critics racist. >> to attack. john: that generally shuns people of. a letter mayor and his cronies found new ways to let the city. >> the term city all into a den of briribes and kickbacks making themselves rich. >> what is the issue? have violated any rules? gabba you come back with no. john: actually, i jury eventually came back with yes. he will be sentenced this fall. now, there are crooked politicians and politicians to overpromise everywhere. why is detroit in the worst? let's ask the reason foundation. she lives in detroit. the goldwater institute city's local government. what happened to your town? >> well, detroit turned into a one-party town. for 50 yrs it was ruled by one party, which means that usually you get -- the stupid party. in detroit's case there was no suchheck. you get out of control spending and corruption and waste. john: i assume they are in town. they know that some day somebody has to pay for this. >> yes. they're not dumb. they're just very greedy. no one is thinking about the long-term horizon. all the thinking about is getting reelected and which constituency they need to buy in order to do that. in detroit, as all of michigan, unions and especially public unions are extremely strong. john: you study this around the country. what doesities to that is better? >> it's so interesting. detroit used to be called the paris of the midwest. of course today $28,000 debt per person. you can lk to other cities that are operating in the black with cash on hand, were winning public parks, all kinds of things. john: was the difference? >> number one, sandy spring georgia, the city that privatized nearly everything. by privatizing garbage, sewage, accounting, back office operations. they cut the cost of government in half. any city in america could benefit from just that one provion. john: by government employees but things still run well. >> well, when she was talking about the strength of the unions, that something else the sandy springs has right. by privatizing these services, you don't have the unions. so you only have five government employees. john: and the town is smaller than the charge, but still -- >> hundred thousand pple. there have been five more cities to come along and copy this sandy springs model. john: and while detroit is what debt per person? >> 28,000 per person. john: sandy springs. >> nine, operating totally in the black. they're charter requires them to have a cash operating reserve which is how they pay for capital projects. john: yorktown got in the worst trouble because your last mayor was taken money for himself, kilpatrick. hesed city funds to fund junkets, 54 trips, when zero rentals, but the charges, hired 29 of his closest friends and family for city positions. people didn't notice? >> that was not even the worst of it. the worst of it that he was actually using -- he was receiving kickbacks for fines of his choice to give and city contracts to his favorite cronies that used to be called friends and family in detroit. so he used to talk a good game. he would talk to bring all kinds of development to detroit at the same time as he was talking about theig game he was quietly siphoning the city coffers for money which is one reason why the chart was left in the financial mess. john: trucks are crooks, but even regular politicians wreck cities. i will confront one of your city council members. we want to make it easier for business. giving them taxreaks. they have all these deals. what's wrong with that? >> they're giving tax breaks to businesses that they have hand-picked. these -- this is the kind of mentality. th like big, glamorous things. at the same time as detroit, in subsidizing these big businesses going after noncompliance, little mom-and-pop stores. operating illegally. john: operation compliance. we're going to shut down 20 on lices businesses every week. >> that's right. john: of their unlinsed maybe they should shut down. >> well, bob licensed businesses are providing vital services today. these are businesses that they're selling chief --heap tires, sond and appliances. this is a ty that is losing about 300 people. the population has dropped from 2 million to under 700,000. this town needs businesses. it needs residents. taxing them and regulating the business to drive more of them now. john: darcy, you list three things that all city should do. ivatization, water the of a two? >> well, transparenc which is a big one. gaithersburg, md., has zeroead and half for 40 years. everything they do, these contracts, all of those contracts, or on line. audits, accounting. it helps. a little bit of sunshine let people know what's going on and creates a culture of trust which is important for getting people to want to invest and come back into the city. john: before a city can get new debts goldwater says -- >> voters should have to approve it. bonds have to go before the voters. quite often they say no. that's a great check on curbing these huge liabilities. john: despite all the debt coming to church as the third hiest income tax of any major city. after philadelphia and lewisville which are doing that great either. detroit is in the worst shpe. >> detroit, it even taxes and utility bills of residence. i think it might be the only city that does that. it has property taxes, business taxes and utility taxes. john: thank you. coming up, a libertarian has a plan to turn part of detroit into a mostly government-free zone. will that work? are will cfront the politician whoho won't talk. next, the rain reason -- the main reason detroit is broke. ♪ >> we can borrow. in fact charlie really couldn't borrow money more recently. we'll them. >> detroit's new emergency manager. detrt's elected politicians spent all the money. this spend billions more. suppose to give detroit out of that mess without stripng workers of their pensions until care is not clear. michigan's former ste majority leader. what will happen? >> the judge will push the reset button. it will be the largest city in america ever to go into bankruptcy, federal bankruptcy. everybody, kern workers, caroer47 separate public unions in the city of detroit. in fact, some o the unions have only one member. it's hard for me to envision. of one man union. and i just don't think politically a union can go to its members and say we agree to wage cuts or cuts to pensions are cuts to health care which is why i think it ends up in front to a federaludge. the emergency manager of the charge might not say this to anybody. i think he prefers to in chapter nine. he has more power. a judge can say to the unions, you know, you can protest all you want to value a michael ix:00 monday morning. you have an hour to make your case and then on my decision. i really think that he prefers to be in chapter nine. john: how big hair cut? three in a half billion in the red which means a union worker thinks he has 50,000 year might only get 30? >> well, the judge is going to make that decision in a bankruptcy court. and i really -- let me just say this. i have a great deal of sympathy for the average pensioner or the average retiree because they are not really getting a lot of money. john: and they do nothing wrong. >> they did negotiate the deals. they did under invest in the pension fund. detroit has to pension funds. one for police and fire and one for general employee use which is the larger. that fund is a mess. 30 percent of the investments are unrealistic. so the political managers said, let's invest inhis and it made no money. >> somebody's friend, someone's uncle, someone's cousin. and that pension fund is under investigation as we speak. john: i see that the pension boardd $22,000 to send for truses to why. >> this is at a time when the pension fund is headed for baruptcy. once again, it's up the pensioners fault. as the flt of people who are mismanaging the fun. thefault of union contracts that the city could never afford but the politician says, want to say yes. john: these guys are like me and when the bomb hits all be long gone. did they even think that way? >> cities all over this nation deal with those kinds of problems. the problem in the city of detroit is the leaders never really confronted it and tell what it. was almost as if there were on remote-control model pilot, thinking someone would come in and bail them t over time. as we have seen in the promo to thisegment of your sry, those days are over. there is no more money. borrowing from peter to pay paul and the ball to pay peter, those days are over. there's no money left. john: thank you. coming out, weill confront one of those toward politicians. up next, a tour of detroit's ruins. >> there was a dead body found over year. ♪ ♪ john: what's up wit detroit? the city is a mess. about two-thirds of its population left town. all neighborhoods are crumbling. recently special correspondent clock three detroit. >> that house over their right behind you is literally being consumed by weeds. >> that's one example of so many. >> he works for one of the community groups is trying to clean of neighborhoods. this one needs it, despite signs like this one. much of it looks like a garbage dump. >> that's good news. >> absolutely. but are they going to pick up all of thii? i don't think so. >> what is the strangest,reepy as thing or thingssthat they found as they try and remove the blade and the trash? >> the worst thing was an actual dead body that was found over year. bowling balls. you name it, kitchen sinks, refrigerators. the remnants of life. john: many people left neighborhoods like these because there are so few basic services. , 11 in the ambulance may not come. >> the reality is that pick themselves up and put themselves in their cars to take them to the austral. john: said amidst the garbage an abandoned property there is life. >> you see this house, nice motorcycle of front. how does this person and i? >> two things. they have hope. to, they like their neighborhood john: they found a home owner. >> empty lots and and the houses across the street. what keeps you here? >> well, i want to stay here in the city. i'm here. >> to you ever worry abouthat happens in the empty houses and ether or not people are going to come after your stuff? >> i kind of keep the lot cut, closed doors on the abandoned houses, stuff like that. >> to keep an eye on them. >> you have to. >> to use to have neighbors. >> yes. >> people just -- >> they moved out. john: and this was typical of what y saw. >> it was neighborhood after neighborhood. nice trees with nice homes and then a block away it was these abandoned, burned out homes. they were being devoured by the earth. detroit is falling back into the earth, and that's all bad john: it's not so great. it has some problem areas. >> for your show we have been the some problem areas. for sale signs, people moving out, homes under water. people give up and walk ay, but that's just for sale signs. this is literally a civilized society devolving to nature. this is what they talk about, philosophers. on a talk about the state of nature, the reversion, this i happening. john: you don't reay siqueiros >> the state of nature does not give way to chaos. is not going to be chaotic. we found what i like to call accidental libertarians, people who are becoming so self-reliant in of the city government has failed them utterly. services aren't there, police are going to show up, so they have collected in the group's, crafting gardens, keeping bees, have chickens, a lot of open land now. john: injured going around with these community activists. there were saying we just need a new mayor. >> the not talking about civic solutions. a talking about getting together, mentoring kids so tha they have something to do so it now fallen to crime and making the best out of the situation. bad is not an acceptable word. it's something different. john: one other area, politicians have driven deterred so far into the tank that prices are not cheap. it's good place to start from scrah. >> you controlled by an empty lot for anywhere from 10500 bucks. you can buy a house for 510,000. john: we checked out this abandoned house. it has been gutted by thieves. >> if you can see new flooring. obviously they have taken everything out, all of the metal windows, appliances are gone. for $1,500 you could buy this house. >> and fix it up. >> you think about first-time homeowners. you could literally on the house for $1,500 which is will allow the people pen ran. john: are you going to mov there? >> if i didn't have kids would. move to the try. is plenty of land. the people are so infectious. i enjoyed my time. it was like surveying a war zone populated by st. really awesome, abandon -- banding together. detroit is the bee's knees. john: thank you. next, a man who has a plan to reue detroit. his version, turning part of it into a of free-market paradise away from the reach of government. is that even possible? when we made our commitment to the gulf, bp had two big goals: help the gulf recover and learn from what happened so we could be a better, safer energy company. i can tell you - safy is at the heart of evething we do. we've added cutting-edge technology, like a new deepwater well cap and a state-of-the-art monitoring center, whe experts watch over all drilling activity twenty-four-seven. and we're sharing what we've learned, so we can all produce energy more safely. our commitment has never been stronger. ♪ john: hat can be done about a place like detroit? since it is so broke that often no one comes if you call 911. some people there are finally ready to try new ideas. as the owner of a detroit bar puts it. >> let's look at it with hope in mind. nothing else has worked. really we need new ideas. john: here is a new idea. take this island, it' now a park. make it into a limited government paradise. >> n need for taxes on income, investment, or the states making it a magne for capital. >> it has become the big west tagger island. john: wait a second. we are ahead of ourselves. that is speculation. the video was made by real-estate developer. what do you want to do? >> well, i think it can be an opportunity for detroit to once again regain its stature. the vision is ten have an investment group by the island for $1 billion from the city of detroit and to apply for commonwealth status from the federal govnment similar to what the northern mariana islands in join our pr. john: freedom to try new rules. >> we have our ownnlaws. the government taxation. we would be business friendly. we tryo model ourselves after singapore. during that time the detroit has gone from 2 million people down to 700,000 from 1950 until the present, singapore has gone from 1 million the 4 million peopl we would be business friendly. we would he some taxion principles which would make us very competitive. number one is we would not tax anything we want to encourage. number two, taxes have to be transparent. john: we don't want to tax anything. encourage. >> we don't tax investment or labor in come. john: you do tax. >> consumption. and the primary tax would be a real estate tax, but it would only be on the raw land value of the property owner, not upon the improvements that that person puts on the land. john: and you would have to speaenglish to come to your counity and bring in $300,000 to be a citen. >> however, we would have a process. we would waive the fee. john: why? >> well, if it brings a special skilill or a burning desire to e free. john: and you really have serious investors. >> yes. john: plenty of people' response to this is, are you kidding? >> finally a consequence preparedness for rich americans. thank you for showing the people of detroit that life gives you lemons you take the lemons to your own island so you don't have to share any of the lemonade. john: you're on the island. how does this benefit the poor people of detroit? >> a tremendous amount of capital will command. th will invested nearby. bring detroit back because people invested detroit. john: you wte the book to try to explain this to people. it's titled belle isle, the detroit game changer. the new york times, i'm not surprised to must near you. th writer said that the book has the hero landing on the rooftop helipad of the 57 story hotel. it makes the entire scheme very easy to mock as objective is to fan fiction. objective is referring to eyeing rand. you are a fan of hers. >> i am. john: you talk of havg a billion dollars, trying to buy this from the city. within this city would gym but that. politicians often surprise me. detroit cityouncil members don't want to give up much of anything when michigan's governor offered to have the state takeover belle island park since detroit can't even afford to maintain it, local politicians screamed. >> you may not take over bell island. it belongs to the people. john: it belongs to the people, not to you. >> this would create a lot of jobs and opportunity. right now there's no hope for the future. this would create that held. john: this could save detroit just by bringing in new ideas and people and money. >> i believe so. there would be our singapore or as hong kong is to china. john: i wish you luck. thank you. next, did you know detroit has thousas of valuable paintings? but it won't sell any. i will confront a politician who says no next. ♪ ♪ john: what's up with the charge? the city can pay its bills, so the state offers to save them $6 million per year by managing a park on belle isle. it would still be a park. it would not go away, but detroit opposes even that. are they pow mad? the second highest ranking member of the detroit city council. councilman, why not sell stuff? >> i was in favor of selling at. we have a lot of issues. you wanted more time. john: $6 million you would save right now. why not to say yes. >> that was back in the ely part of this year. we are responsible for the assets. a deal of this magnitude, we know we needed toake a time make sure the deal was advantageous for the city of detroit. if we can find other ways to garner revenue, that's my platform. johnbut you can't. you're out of money. >> there are ways right now. fortunately we have an emergency manager and a looking to possibly sell assets to be is not our first priority. looking to slash employee ranks, negotiate bond debt. everything's on the table right now. we have to stop losing money and of the city forward, become financially solvent so that we can be a thriving city again. john: why not to before? >> we tried. keep in mind, this did happen overnight. thirty your 45 years in the making. the current council, the mayor under our watch, we try some things. we cannot go any fther. we have a legacy costs, declining population, the plot -- declining revenues. john: you have declining population and revenue because you guys spend so much that there were lousy city services. >> well, you're correct. over the years we did not allow ourselves to keep pace with the declining population. the city continues to spend, and we came into office and cut the budget every year. nothing hadeen done like we have seen. we did as much as we could this point, but we are having people move into this right. there are a thriving businesses, peop moving in, families moving in. revitalization taking place but at the same time the expenses need to get on an even keel in order to have financing for city services so that people n have a quality of life. john: if somebody wants to sell, you oppose that. >> one reason, we don't need any more new trees. many people -- john: our you in a position to bargain? would think you take anything. >> everything is not a gd dea it did look good to me at the time and it doesn't right now. going to a teardown some homes. take care of some of the land, plant trees, plants robbery. we will have people who he vacant houses. plant numerous trees and shrubs. they didn't move there for that. one another home. john: i don't see why you politicians to decide what neighbors alike, but that's not my business. >> we live in those neighborhoods, too. john: what about the art i the art musm, 60,000 are works. >> yes. we have valuable pies art. van gogh self portrait, diego rivera's murals. those are assets that we should have protected a long time ago. i trust tha will not have to be sold off because will never be will get them back again. we have the park and museums, numerous assets that could b up for sale. i trust right now, negotiations we n get fun's or control -- under control. john: i just don't get it. you talk about this. the city has been going broke for a lo time. 60,000 paintings. the van gogh itself to be worth $200,000. some of the people could look at it in another town who could afford it. >> we can't afford the museum. that's onessue. it's one issue. the painting belongs to the people, and that's a small issue compared were going to. we have people who have moved out of detroit. there are things we have to do the change ourselves. weill come back again in order to make sure we are not in this kind of deficit in years to come. my children. john: sense to toward i broke how come you have six staffers working for you? >> i do not. when i began we had a budget of $600,000. right now were down the 230. add three people leave. i had three people now. one may be leaving sometime shortly. @%hn: you're website saysou have a community reelected of liaison, six people. >> we have for right now. i can tell you right now. john: why do you have any? >> well, how do we get things done? the goverent is to work. people call our office. we have a constituent complained i can't answer the phone. we do need some person. john: thank you, councilman. >> thank you. john: i find it frightening that our financial future will be determined by politicians like those on detroit city council. this is a problem for all america. government officialsarelwant to give anythin up. last year hewlett-packard fired 27,000 workers. ibm and gm laid off 100,000 when expenses got too hot. people were upset that the country to five companies had to do to survive. in the private sector will make our decisions like that all the time. people eat to the people usually don't even hear about it. in government they call any cut a crisis. even in detroit where you call 911 and no one respond, officials won't even sell a few paintings or let someone else manage one part or cut their four persons-. it's the rest of america's government is anything like detroit, america is in big trouble. that's our show. that's our show. see you next week.d hello, i'm dave gentry. welcome to "small stocks and big money." [intro music] [intro music] [intro music] [intro music] [intro music] [dave gentry] you know, every day, our analysts are on the hunt for small stockshat can provide big returns for patient investors,nvestors who also have an appetite for risk. smaller-cap stocks are the riskiest asset class, and th're also