Tag Archives: financial advisor

Flawed Math on Student Loans

Piggy Bank 1My Comments: The staggering level of student loan debt has the potential to sink the economic future of this country. Young families with the debt hanging over them will be less likely to buy a house, to buy a new car, to spend money on consumption items, all of which means economic stagnation. Income earned doing whatever they can will Instead be used to pay down debt, leading to stronger profits on Wall Street. Much of that money will be transferred overseas where it will do very little for us. Absent that debt, the money will be spent and flow into the economy. With the proven multiplyer effect, it will result result in more and better jobs and increased financial freedom for ALL OF US.

I encourage you to pay attention to those presidential candidates who are willing to talk about this and find a remedy good for all ALL OF US, including leaders of corporate America. I have no problem with them making millions if the rest of us have a fair chance to survive and thrive.

Kate Flanagan – May 5, 2015

Aggregate student loan debt surpassed credit card debt in size for the first time in 2010. Since then, the gap has continued to grow and now exceeds $200 billion. Student loans (at over $1 trillion) are now the second-largest category of consumer lending, second only to home mortgage lending.

While the total pool has been growing, the share owned by the Federal government has grown even faster. In 2000, the government’s student loan book was valued by the CBO at $149 billion; now, it exceeds $1 trillion. More than 90% of new student loans are being initiated by the government.

The rapid growth in the government’s portfolio can be traced to several policy changes:
• The government chose to largely remove banks from the lending process, following the financial crisis. The commonly stated objective was to save of $60 billion in fees over ten years (though that number has been questioned by the CBO).
• A decision was also made to expand the type of lending done without screening criteria.

Typically, student lending done by banks had involved application of some basic credit criteria, even if the government would ultimately own the loans. Now, for the majority of loans, that is no longer the case. What is the quality of this massive loan book, and what are the implications for both students and taxpayers? The New York Times, on March 22 of this year, noted that “many” of these loans “appear to be troubled.”

Unfortunately, it’s difficult to know exactly how bad the problem is. The Federal government’s own lending is exempt from the stringent loan forecasting, accounting, and reporting requirements that apply to lending by financial institutions. The March 22nd Times article noted that the Fed has had to resort to purchasing student loan data from credit bureaus in an attempt to get some metrics on this portfolio. The Education Department does not provide even basic vintage delinquency data to the agencies that oversee the financial system. This is ironic, given that Federal reporting requirements for banks have grown massively since 2008, and reporting of more than 100 data elements is now required at the individual loan level on a monthly basis.

Another unknown is equally troubling. It’s really not clear whether the expertise to manage this kind of portfolio exists within the Education Department. Consumer lending is primarily driven by technology and analytics. These tools work best when deployed by staff with deep expertise in management of risk assets. Has the Federal government had the time (or budget) to invest in the massive loan tracking and management systems that underlie the operations of consumer banks? Constant updating of data (both from the students themselves and external sources) should be taking place, leading to frequent loan level modeling of default risk. This type of modeling could drive targeted rollout of both predelinquency and early delinquency programs. Such programs could potentially aid borrowers before it’s too late.

Proactive management of this $1 trillion portfolio is crucial, both for the borrowers and the lenders (the taxpayers). It’s important that the implications of this coming wave of defaults for future Federal budgets be clearly understood. How much of a loss do we expect to take?

It is particularly hard to know the answer to the last question, as the CBO is required to use an unusual method of accounting for these loans. They have released quite a few reports noting that fair value accounting would yield a much less favorable assessment of the Federal loan book. A recent report documented a negative swing of over $200 billion. Crucially, these estimates are being made without the benefit of true credit quality data, which should underlie forecasting on all risk assets. The real “hole” may be much worse. And the problem is just kicking in, as the no-payment grace period is just now expiring on many of the loans made in recent years.

Good intentions followed by poor execution can bring damaging results. Some years back, the idea of providing a way for most Americans to own homes sounded very appealing. But the result was a situation in which many lower incomes households became excessively leveraged and terribly illiquid. Many were badly harmed when housing prices started to drop, and suffered further pain when the job market tanked. In its execution, these home ownership programs seemed to end up hurting some of the very folks that they had been intended to help.

More recently, the idea of extending a loan to anyone who qualified for college also sounded appealing. However, not all courses of study will provide sufficient additional income potential to ensure payback.

Both the economic value of the asset (the degree itself) and the available credit data on the borrower should have been considered when lending was expanded. Finally, and more controversially: interest rates on Federal student loans should have been varied in relation to the risk of the loan. This is Risk Management 101. By not doing this, the government is essentially admitting upfront that they plan to subsidize loans to riskier borrowers, or in areas of study that do not typically bring large returns. Our national policy on this point should have been debated openly. College tuition grants should be done explicitly, in accordance with a comprehensive policy framework, not through the back door (and not in a way that demeans students by first having them default on obligations).

It’s worth noting that household debt can be discharged in bankruptcy court. However, Federally backed student debt cannot. Many students who were given loans initiated without appropriate risk assessment face a situation in which repayment will be difficult, and legally available opportunities to reset their obligations will be few. It seems likely that the rules governing discharge will have to be changed. As noted, loan forgiveness programs will doubtless be greatly expanded, and a sizable portion of this $1 trillion loan book will likely be written off. The impact to the lives of the graduates in question will be severe, as discharges and forgiveness programs must be reported to the bureaus. Credit scores will drop hugely as a result.

The graduates in question will therefore find it harder to get jobs, credit cards, car loans, and even apartments. Credit scores are routinely checked in relation to many transactions these days, including potential offers of employment.

The longer we wait to face this growing problem, the more future graduates (and taxpayers) we will put at risk. The bell is ringing. It’s time to get the math right on student loans.

* Kate Flanagan is a guest contributor at the Center for Financial Stability (CFS). She has spent 25 years in consumer banking, most of it with Citibank. She has extensive experience in the credit card business and in consumer lending generally, with particular expertise in risk analytics and technology. Her consumer credit experience spans 40 national markets. In her 23 years at Citibank, she moved between functions and regions to implement rigorous, analytics-based business methods across all stages of the consumer credit cycle (from originations to collections). Since 2010, she has been doing consulting in risk analytics. Kate holds a BA in Math from Brown University and an MBA in Finance from Columbia University.

The Center for Financial Stability (CFS) is a private, nonprofit institution focusing on global finance and markets. Its research is nonpartisan. This publication reflects the judgments and recommendations of the author(s). They do not necessarily represent the views of Members of the Advisory Board or Trustees, whose involvement in no way should be interpreted as an endorsement of the report by either themselves or the organizations with which they are affiliated.

Republicans Dismiss Latino Concerns At Their Peril

My Comments: I’ve talked before about immigration issues. As an immigrant myself, I’m perhaps more sensitive to these issues, even though I arrived as a child from Europe. My father was looking for a better way to provide for his family and since he had lived here as a child and had a degree from LSU, the US was the logical place to live.

For me, the upcoming presidential election is less about the ability to shout slogans than it is about choosing leaders with a fiduciary mind set with respect to ALL people living here. Too many candidates to this point are like many life insuarance agents I’ve come across over the past 40 years. They were trained to tell you anything you wanted to hear. Their primary motivation was to have you sign an application and a check so they got paid. If what you were sold was in your best interest, that was simply an incidental benefit, not the reason for the sales effort.

by Cynthia Tucker May 30, 2015

Undocumented immigrants have lost another round in federal court. So has President Obama, who has attempted to put in place an enlightened policy that would delay deportations for some 4 million illegal border crossers, many of them young people who think of themselves as Americans.

But several days ago, a panel dominated by conservative judges reaffirmed an earlier ruling that blocked the president’s executive order from going into effect. That means Obama’s plan to sidestep Congress and grant temporary quasi-legal status to qualified undocumented immigrants is in trouble.

Predictably, many Republicans are exulting. They have blasted Obama’s executive orders as despotic, and many of them play to their ultraconservative base by bashing immigrants without papers. They see the court rulings as justifiable limits on a president whose policies they abhor.

Yet, these court rulings on immigration have hardly done Republicans a favor. In fact, the decisions are likely to prove a major headache for GOP presidential primary candidates, who are already suffering a poor reputation among Latino voters.

Since Mitt Romney’s defeat in 2012, Republican strategists have attempted to repair the party’s image among Latinos, urging their major political players to adopt a more favorable policy toward illegal immigrants. They know that Mitt Romney was haunted by his rhetoric favoring “self-deportation”; Latinos supported Obama over Romney 71 percent to 27 percent.

Still, Republicans have had difficulty reaching out to them. Most of the presidential candidates have tried to keep quiet on the issue of illegal immigration, hoping not to be caught in the sort of misstep that Romney made, but also trying not to alienate their primary voters.

Among the major contenders, only Jeb Bush, former governor of Florida, has been outspoken in advocating a compassionate approach to illegal immigrants. Speaking at an April event celebrating his father, Bush said: “Yes, they broke the law, but it’s not a felony. It’s an act of love. It’s an act of commitment to your family. I honestly think that that is a different kind of crime that there should be a price paid, but it shouldn’t rile people up that people are actually coming to this country to provide for their families.”

But even Bush has soft-pedaled on a significant point, according to Washington Post blogger Greg Sargent: “(Bush) has also retreated to a safer position, hinting he agrees we must secure the border before legalization.”

Exposing The Dark Side of Personal Finance

USA EconomyMy Comments: In keeping with the prevailing assumption that anything you see on TV or read on the internet is gospel, financial planners are constantly trying to undo the “lessons” taught by certain celebreties who are more interested in selling books than they are in providing good information.

Whenever I’ve attended regional meetings with hundreds of other advisors, and someone deliberately or accidentally mentions some of the well known names referred to here, there is a collective groan from the audience.

The following comments come from a Brian J. Kay, the Executive Director of a company called Leads4Insurance.com. He talks about a video and interview with Helaine Olen, author of the book “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” Here is what he wrote:

The interview – and her book for that matter – really sticks to it the talking heads of the personal financial industry such as Suze Orman and Dave Ramsey.

First, she calls out Orman for suggesting that people put all their savings in the stock market, a strategy Orman does not employ to her own finances out of concerns for stock market volatility.

More broadly, Olen objects to the idea that one person can give blanket advice to millions of viewers and readers.

“The idea that anybody can give specific advice to millions of people… it doesn’t really work. We’re all specific. We are not archetypes,” Olen said. Bingo.

Every person has a different income than the next. Different needs embedded in their tightly woven budgets. Different plans for retirement. Different levels of comfort with savings and investing.

And it should be mentioned that all those talking heads are millionaires. It’s much easier for them to say, “Paying down all your debt is your number one priority” when they can immediately do so with the change in their couch cushions.

Real people are living under the economic pressure that hasn’t seemed to let up on those living and working on the ground level of our economy. They rely on credit for medical emergencies, unexpected repairs to their cars and homes, or to help them get through a long drought of unemployment.

Though I am not a big fan of her financial recommendation to “always buy indexed funds,” I strongly agree with her assertion that our financial problems stem from a culture that avoids having frank conversations about debt and savings.

If you are like me and can’t standing seeing flocks of people led astray by these “experts,” take solace in knowing that you provide an antidote to our culture’s financial problems.

By that, I meant that you provide honest, frank discussions with clients about their personal finances, savings and debt. You provide personalized financial advice to them for their – and only their – situation.

Not only do you provide that ideal financial solution, your solution is less complicated, more applicable and more trustworthy.

TV can’t say something relevant to everyone watching (though they think they are).
A book can’t build up enough trust with clients to hold them accountable to achieving their stated financial dreams. A talking heard can’t follow up with prospects after initial meetings via phone, e-mail or snail mail.

And neither can answer a call or text from clients when they have questions.

My hope is that you use this as ammo to keep fighting the good fight and to dare to ground people who are lead into the clouds by famous “experts” and dropped without a parachute.

America Could Have Been One Giant Sweden — Instead It Looks a Lot Like the Soviet Union

My Comments: This is a long, uncomfortable article that predicts how the world might evolve economically and politically over the next several decades.

My generation will have passed on soon, but regardless of your political stripes today, it will be different. If you want to take back America, or at least preserve what we have, you had better get in touch with your socialist side. Either that, or kiss your basic freedoms goodbye. Life simply does not stand still; never has and never will.

By John Feffer / May 26, 2015

Imagine an alternative universe in which the two major Cold War superpowers evolved into the United Soviet Socialist States. The conjoined entity, linked perhaps by a new Bering Straits land bridge, combines the optimal features of capitalism and collectivism. From Siberia to Sioux City, we’d all be living in one giant Sweden. It sounds like either the paranoid nightmare of a John Bircher or the wildly optimistic dream of Vermont socialist Bernie Sanders.

Back in the 1960s and 1970s, however, this was a rather conventional view, at least among influential thinkers like economist John Kenneth Galbraith who predicted that the United States and the Soviet Union would converge at some point in the future with the market tempered by planning and planning invigorated by the market. Like many an academic notion, it didn’t come to pass. The United States veered off in the direction of Reaganomics. And the Soviet Union eventually collapsed. So much for “convergence theory,” which like EST or cold fusion went the way of most crackpot ideas.

Or did it? Take another look at our world in 2015 and tell me if, somehow we haven’t backed our way through the looking glass into that very alternative universe — with a twist. The planet currently seems to be on the cusp of a decidedly unharmonic convergence.

Consider what’s happening in Russia, where an elected autocrat presides over a free market shaped by a powerful state apparatus. Similarly, China’s mash-up of market Leninism offers a one-from-column-A-and-one-from-Column-B combination platter. Both countries are also rife with crime, corruption, growing inequality, and militarism. Think of them as the un-Swedens.

Nor do such hybrids live only in the East. Hungary, a member of the European Union and a key post-Communist adherent to liberalism, has been heading off in an altogether different direction since its ruling Fidesz party took over in 2010. Last July, its prime minister, Viktor Orban, declared that he no longer looks to the West for guidance.

To survive in an ever more competitive global economy, Orban is seeking inspiration from various hybrid powers, the other un-Swedens of our planet: Turkey, Singapore, and both Russia and China. Touting the renationalization of former state assets and stricter controls on foreign investment, he has promised to remake Hungary into an “illiberal state” that both challenges laissez-faire principles and concentrates power in the leader and his party.

The United States is not exactly immune from such trends. The state has also become quite illiberal here as its reach and power have been expanded in striking ways. As it happens, however, America’s Gosplan, our state planning committee, comes with a different name: the military-industrial-homeland-security complex. Washington presides over a planet-spanning surveillance system that would have been the envy of the Communist apparatchiks of the previous century, even as it has imposed a global economic template on other countries that enables enormous corporate entities to elbow aside local competition. If the American tradition of liberalism and democracy was once all about “the little guy” — the rights of the individual, the success of small business — the United States has gone big in the worst possible way.
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The End of Florida?

My Comments: I have just two. One is that Florida has about 1350 miles of coastline and that does not include rivers that are somewhat tidal. Two is that if God is all seeing and all knowing, how come he’s only telling some of us to be aware of what’s coming and to properly prepare ourselves for the future?

The Miami Herald – May 31, 2015

Yogi Berra once said that, “The future ain’t what it used to be.” His words could serve as yet another warning for the residents of today’s Florida, a state that finds itself in the eye of the storm on climate change.

It’s customary on the first day of the half-year-long hurricane season to issue a reminder about preparing for what a well-known book (and movie of the same name) once called The Mean Season. Long-time Floridians know they have to be ready, and that now is the time to prepare.

Feeling complacent because Florida hasn’t been hit by a major storm in 10 years? Consider this: On April 11, 1992, the Herald ran a story with the following headline: Slow season forecast for hurricanes. Four months later, Hurricane Andrew devastated South Miami-Dade. And here’s a headline we spotted last week in the Sun Sentinel: NOAA predicts slow hurricane season. Our advice: Be prepared for the worst.

But as bad as hurricanes are, they do not pose existential threats to Florida, or to our future. The recurring peril of windstorms has certainly not stopped the influx of millions of new residents that began in the post-war years and has turned Florida into the third most populous state in the union.

But climate change — specifically, sea-level rise caused by global warming — poses a challenge of another order of magnitude. A hurricane hits our shores like a big bang. It’s here and then gone, leaving disaster in its wake. We clean up, we move on.

Sea-level rise is something else: an insidious attack, slowly gnawing away at our beaches, our coastline, our coastal cities. It doesn’t go away.

And it’s here already. Look at the flooded streets in Miami Beach. Or, further up the coast, the 450-year-old city of St. Augustine, whose streets already flood about 10 times a year, and homes built on sand dunes teetering over open space as the Atlantic encroaches on the foundations. All of Florida’s coastal cities face similar threats. Over on the Gulf side, the Tampa/St. Pete area is deemed particularly vulnerable to rising seas because roads and bridges weren’t designed to handle higher tides.

Insurance giant Swiss Re, according to a recent news story, has estimated that the economy in southeast Florida could sustain $33 billion in damage from sea-level rise and other climate changes by 2030.

The Southeast Florida Regional Climate Compact said last year that waters around this area could surge up to two feet by 2060, posing a huge threat to our infrastructure and fresh water supplies and, ultimately, our way of life.

These are not wild guesses or alarmist warnings. They’re predictions, based on accepted science. And here’s the rub: While some communities, like Miami Beach, are scrambling to prepare for this challenge, the state of Florida has no plan. Gov. Rick Scott’s disregard for climate change science has created a culture of fear among state employees.

We don’t think the end of Florida is inevitable, or even likely. But the end of Florida as we know it is certainly possible, and growing more likely every year as the state’s once limitless future erodes along with the vanishing beaches and shrinking shoreline.

State leaders, it’s not too late to steer Florida in the right direction. We should be drawing up plans to cope with the challenges of the future, instead of heading blindly toward certain disaster. Or, as Yogi Berra also said: “If you don’t know where you are going, you might wind up someplace else.”

Read more here: http://www.miamiherald.com/opinion/editorials/article22639026.html#storylink=cpy

What Oil Price Is Sustainable?

oil productionMy Comments: Buying gas for your car at the pump is now an adventure fraught with uncertainty. Is the price going up or is it going down? What can I expect the next time I need to fill the tank? Is there a station on the other side of town willing to lower their price to get more customers? Does it make sense to drive all the way over there to save 3 cents on every gallon?

Some people simply don’t give a damn, or have enough money that the question is irrelevant. But for many, it’s a weekly quiz that surfaces every time the needle on the gauge moves toward the empty side.

So as someone who understands the dynamics of supply and demand, the two primary drivers of price, this lengthy explanation helped me better understand what is going on as I stand with hose in hand, watching the dollars add up.

There is no simple explanation. The article presented has lots of charts and lots more text to wade through. So if this is your cup of tea, you can get to the source and finish it there.

May. 8, 2015 by The Value Portfolio

Summary
• The cost of oil production represents a lower limit on prices for the long term.
• Many major oil producing countries need higher oil to balance their budgets.
• Lower oil prices will lead to faster-than-anticipated growth in demand, leading to a quicker recovery.

Introduction
While many of my articles talk about individual oil companies, lately, I have been writing more about oil markets as a whole. After my article about the potential effects of the release of Iranian oil, the goal of this article is to try and provide a bottom limit for long-term oil prices.

To those wondering what to do with this information, it simply means if oil goes below this bottom limit, buy it.

15-05 Crude Oil per gallonAs many of you know, the last year has not been kind to oil prices or commodities in general. After hitting highs of near $110 a barrel for Brent a year ago, prices fell by over 50% to lows near $50 in January. Prices then bounced back before bouncing down again in mid-March to ~$55 a barrel. Since then, prices have shown a nice recovery towards $65 per barrel.

Simply put – part of the world’s oil supply was not profitable at $50 a barrel. However, now that prices have recovered, the goal of this article is to determine what is a lower-end cut-off for oil prices – what is the lowest point at which the world’s oil production is profitable.

Balancing The Budgets

Unlike the United States, most other countries in the world are not trillions in debt. This is especially true for oil countries. Thinking of countries like Saudi Arabia and the United Arab Emirates, one thinks of the enormous wealth generated by oil production.

Still, the lavish spending of these countries means that they need high oil prices to balance their budgets. Looking at the above graph, for the 35 million barrels per day produced by these countries (roughly 40% of the world’s oil budget), only Kuwait and Qatar can balance their budgets with current oil prices. In fact, many of these countries rely on oil prices of around $100 to cover their costs.

What does this mean? Traditionally, Saudi Arabia along with OPEC as a whole was seen as an oil price controller. When prices went down, OPEC would step in through cutting production in order to help keep prices higher. This is part of the reason why oil prices recovered so quickly in 2008.

However, this time is different. This time, Saudi Arabia does not want OPEC to cut production, they want prices to remain low. Saudi Arabia is hoping to use its significant financial assets to drive on competing U.S. producers while keeping oil prices low.

Drawing a conclusion from the data, we see that in the long term, the need of OPEC to balance its budgets mean that oil prices of roughly $100 are necessary, with $80-$90 representing an overall lower bound.

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The Obamacare Curse: What If, This Month, the Republicans Finally Get What They Want?

healthcare reformMy Comments: After 6 years and counting, I’m still waiting for a valid, alternate idea to come from the political right. As an insurance agent for 40 years, and having sold individual and group policies for many of them, I understand many of the dynamics involved. Why is it not in our best interest as a nation to have a healthier, longer living, productive citizenry? If you truly believe that, then find a way to make it happen.

By Jonathan Chait May 20, 2015

Last summer, two Republican-appointed federal judges ruled, against the furious dissent of the Democratic appointee, in favor of what had theretofore been viewed as an outlandish lawsuit designed to blow up Obamacare. The unexpected progress of the lawsuit, hatched by anti-Obamacare activists at a right-wing think tank, filled conservatives with sudden Schadenfreude. They had lost every previous opportunity to finish off universal health care: a 2009 vote in the House, a 2009 vote in the Senate, another 2010 House vote, and, in 2012, both a lawsuit and a presidential election. Now they had yet another chance to drive a stake through the hated centerpiece of Barack Obama’s domestic legacy.

Next month, the Supreme Court will rule on King v. Burwell. If all five Republican appointees support the plaintiffs (there’s no chance any of the Democrat-appointed justices will take the lawsuit seriously), some 7 million Americans will quickly lose their insurance. The prospect that this will occur has induced a wave of panic — not among the customers at risk of losing their insurance, who seem largely unaware, nor even among Obamacare’s Democratic supporters, but among Republicans. The chaos their lawsuit would unleash might blow back in a way few Republicans had considered until recently, and now, on the eve of a possible triumph, they find themselves scrambling to contain the damage. It is dawning on the Grand Old Party that snatching health insurance away from millions of helpless victims is not quite as rewarding as expected.

Unlike the Obamacare lawsuit that failed three years ago, the latest case is not based on a radical legal theory. Instead it is based on a novel reading of legislative history. The law allows states to set up their own exchanges to sell insurance to those who don’t have it through employer coverage, Medicare, or Medicaid. If states don’t establish an exchange, the federal government sets one up for them and, as it does with the state exchanges, offers customers tax credits. The trouble is that the law authorizing tax credits defines the exchange as “established by the state.” This ambiguity — does “by the state” not also mean the federal government? — was a technical omission. Many other parts of the law indicate its intent to make tax credits available to customers on the federal and the state exchanges alike.

The plaintiffs are led by a Vietnam veteran in Virginia named David King who makes $39,000 a year and objects to having to purchase insurance on a federal exchange. He would be exempt from this requirement were he not eligible for the tax credit — his $275 monthly payment would rise to a disqualifyingly unaffordable $648 — and this exemption, his lawyers argue, was exactly Congress’s intent. Without tax credits, the insurance would be unaffordable to most customers, triggering an actuarial death spiral that would destroy the individual insurance market in any state that attempted it. The plaintiffs insist Congress created the threat of self-destructing federal exchanges to coerce states into creating their own. (Disregard the copious evidence that the law’s drafters, and officials at the state level in both parties, believed federal exchanges would include tax credits.)

The lawsuit works more on the level of an elaborate prank than as a serious reading of the law. And yet it stands at least some chance of success — it only needs to persuade Republican-appointed judges. That prospect has grown suddenly unnerving because, unlike previous Republican efforts to strangle the law, the current one comes as Obamacare is functioning extremely well. Premiums on the exchanges have come in well under projected costs, customers report higher satisfaction with their coverage than those who have employer-sponsored insurance, and overall medical costs have grown far below the projected rate. It is one thing to take away a scheduled future subsidy, of which most intended beneficiaries are unaware. It is quite another to take away a benefit they’re already using.

Should the court side with King, wiping out tax credits for residents of the 34 states with federally run insurance exchanges, Obama will propose a simple alternative: Congress should pass a law correcting the drafting error that sparked the lawsuit. Problem solved.

From the standpoint of Republicans in Congress, of course, this would represent the opposite of a solution. The party remains doctrinally committed to the complete destruction of Obamacare. In the past, conservatives have rejected even partial changes to the law on the grounds that anything making Obamacare less onerous amounts to collaboration. This doctrine will now put Republicans in the position of endangering the lives of sick Americans who will lose access to their medical treatment.

Senator Ron Johnson of Wisconsin appeared on a conservative talk-radio show last month to raise awareness of the party’s dilemma. Obama, he told host Jay Weber, will unleash a public-relations campaign to highlight the Republicans’ cruelty. “And of course, he’ll have the ads all racked up with the individuals that have benefited from Obamacare on the backs of the American taxpayer,” he said. “He’ll have all those examples as well, so — ”
“And the sad-sack stories about who’s dying from what and why they can’t get their coverage,” interjected Weber.
“Right,” agreed Johnson.
Senator Ben Sasse of Nebraska has likewise warned that a successful lawsuit would create problems. “Chemotherapy turned off for perhaps 12,000 people, dialysis going dark for 10,000. The horror stories will be real,” he wrote in a Wall Street Journal op-ed. For decades, medical deprivation of this sort used to be a uniquely American fact of life, at least among industrialized countries. Obamacare has turned it into something different: an actual political problem for opponents of universal health insurance.

Neither Johnson nor Sasse has a real plan designed to stop those horrors from taking place. Instead, their aim is to give Republicans a way to divert the blame onto Obama. The party is circulating contingency plans to temporarily restore the tax credits in exchange for crippling the law in other ways. Phil Gramm, the former Republican senator turned conservative-think-tank “visiting scholar” and financial-industry lobbyist, has proposed that Republicans pass a bill to temporarily extend the credits in return for eliminating the law’s regulations prohibiting insurance companies from rejecting old or sick customers. Competing proposals by Johnson and Sasse would likewise weaken Obamacare’s insurance regulations, ultimately destroying the law’s functionality. Gramm even acknowledges that his plan “would put Obamacare on the path to extinction.” Obviously, Obama is not going to sign a bill that puts Obamacare on the path to extinction. The purpose is simply to give Republicans a talking point — they can say they passed a bill and blame Obama for vetoing it. But odds are that Republicans will fail to unify around a bill that can pass both houses of Congress with only Republican votes, because some will deem even a bill that causes Obamacare’s eventual demise unacceptably conciliatory.

At that point, it will fall to the states to either establish their own exchanges or watch their individual-insurance markets collapse. Neither option is terribly attractive for Republicans. The former means surrender. Doing nothing means sowing chaos, deprivation, and death. Will Republicans let this happen? Many Republican-led states have already declined to participate in the law’s expansion of Medicaid. But conservatives are always enthusiastic about cutting programs that aid the vulnerable. They have historically been more reluctant to cut middle-class programs like Social Security and Medicare. Plus the exchange plans not only have buyers; they also have sellers: insurance companies. Even some Republicans eager to throw middle-class people off their insurance may blanch at the prospect of inflicting pain on the insurance industry.

Fear of change has been the right’s most powerful weapon in the health-care wars since they began under Harry Truman. Seeing their weapon turned against them is a frightening sensation, one they are likely to experience many times again.

*This article appears in the May 18, 2015 issue of New York Magazine.