And you would be completely correct....except for SEC. 336. SPECIAL RULE FOR MODEL AIRCRAFT, which effectively exempts the FAA from almost any authority over anything that could legitimately be called a model aircraft used in a legitimate way.
The last part is your opinion, but the actual rule doesn't put it that way. For example:
(4) the aircraft is operated in a manner that does not interfere with and gives way to any manned
Making a 180 and flying above a manned helicopter is interference with that helicopter, and is certainly not giving way to them. Further, the definition of "model aircraft" requires that it be:
(2) flown within visual line of sight of the person operating the aircraft
Two miles away is not "visual line of sight" of something the size of a Phantom. If you think the pilot was maintaining "visual line of sight" as his craft was flying between buildings to get away from the cops, you're wrong.
Further, it would be interesting to find out if any of the neighborhoods he'd been flying this thing in were closer than 5 miles to any airport, or if he even considered that problem.
Effectively it puts the AMA in charge of regulating model aircraft,
As long as those model aircraft meet the definition of model aircraft and operate in according with that law. Which is one way of saying that the AMA is not in total control of model aircraft, just a limited subset.