Economy

AustralianSuper, which has A$260 billion of the country’s retirement money under management, plans to invest up to 70% of its capital offshore to avoid “performance drag” by focusing on home, Paul Schroder said in a Reuters Newsmaker interview.”We are too big for Australia,” Schroder told the online event.”We consider ourselves a global investor with domestic beneficiaries. It is true we were far too Melbourne-centric and Australian orientated, but we are generally in all of our fibres taking the view that we are global investors.”Australian pension fund managers have benefited from a system introduced in the 1980s under which employers must pay an additional 10.5% of staff wages as superannuation. That has left funds flush with money to invest, but with limited assets to purchase domestically.AustralianSuper now has up to 70% of its funds managed offshore, according to Schroder. The organisation had 70 staff in a London office, with plans to triple that headcount. An office in New York, which was focused on private equity investing, was also growing, Schroder said.The fund, which owns ports, airports, rail and road infrastructure in Australia, Europe and North America, has said it wants A$500 billion in assets by 2026, but Schroder said he was taking a longer view. Within a decade, he said, “we want to be a one trillion dollar investor”.”We’re unashamedly in the business of scale,” he said.AustralianSuper had no specific investment target but considered unlisted assets well-suited to its business in the current economic climate, since they typically carried “inflation protection”, Schroder said.At a time of economic, geopolitical and logistical disruption, Schroder said the single biggest investment challenge was inflation, and he dismissed reports that rate increases by the U.S. Federal Reserve were starting to slow the overheated economy.”You need to see some sustained signals to say it’s dealt with,” he said.”Our view is that there’s some pretty tough times ahead. We think we’re in tight environment. The question is: what’s the rate of that tightening and is there a pivot around the corner?”($1 = 1.4280 Australian dollars) More

Earnings from China’s Tencent, an interest rate decision from New Zealand, and a clutch of Japanese economic indicators will give Asian markets a local steer on Wednesday, following another solid rise on Wall Street and notable decline in oil prices.Tencent’s second-quarter results come a day after Reuters exclusively reported that the tech giant plans to sell all or a bulk of its $24 billion stake in food delivery firm Meituan.This would placate domestic regulators but also bring a timely cash injection – Tencent’s second-quarter profit is forecast to slide 27%, per analyst estimates on Refinitiv, thanks to a slowing economy and tightened video-game rule.Tencent’s shares edged up 0.9% on Tuesday, while Meituan’s slumped 9%, their biggest fall in five months.On the macro front, the Reserve Bank of New Zealand is expected to raise its cash rate by 50 basis points for the fourth meeting in a row. All 23 economists in a Reuters poll forecast the rise to 3.00%, which would mark the most aggressive tightening since 1999. RBNZ rate decision: https://tmsnrt.rs/3ApCqVH Meanwhile, figures from Japan are expected to show a recovery in machine orders and a narrowing trade deficit. The Tankan manufacturing and services indexes for August will also be released. Tuesday marked another 3% fall in oil prices and solid rise on Wall Street. Brent crude is now lower than it was before Russia’s Feb. 24 invasion of Ukraine, and the S&P 500 has rebounded almost 20% from its June low. Later on Wednesday investors also have a clutch of U.S. and European macro releases to digest, including: UK inflation, euro zone GDP and employment, and U.S. retail sales.Key developments that should provide more direction to markets on Wednesday: Tencent’s Q2 earningsRBNZ interest rate decisionJapan machine orders (June)Japan trade data (July)Japan Tankan surveys (August)Australia wage growth (Q2)Indonesia current account (Q2) More

Ministers are facing growing calls to scrap the annual, inflation-linked increase that affects about half of England’s train fares to help ease the cost of living crisis and encourage more people back on to public transport. Price rises for regulated fares, which tend to be on commuter routes and include season tickets, are calculated using the retail price index for July as a benchmark. This is expected to be close to the June figure of 11.8 per cent when it is published on Wednesday, the highest level since the early 1980s. The Department for Transport has promised to take “decisive action” to protect passengers and has said it will not increase fares by as much as the July RPI figure. It has also said it will delay the price rise from January to March next year. But passenger groups have called on the UK government, which is responsible for setting fares in England, to go further. The Campaign for Better Transport said there was evidence that fare rises reduced passenger numbers, and that a freeze could be funded by introducing a new tax on aviation fuel for domestic flights. “The money raised could pay for a rail fare freeze next year to make the trains cheaper and encourage more people to use them,” said Paul Tuohy, chief executive of Campaign for Better Transport.Chris Page, chair of passenger group Railfuture, said the government should make rail travel “much more affordable” to help tackle the cost of living crisis. “The government claims that the fare rise will be below inflation, but the devil will be in the detail. They won’t say what the increase will be, or which fares it will apply to,” he said.

Transport secretary Grant Shapps and chancellor Nadhim Zahawi have pledged to follow convention and not make any significant policy announcements until a new UK prime minister is chosen by the ruling Conservative party on September 5. One government insider said no decisions on rail fares would be made this month: “The usual range of options are being worked up for the next government.”Regulated rail fares apply to around 45 per cent of tickets, including season tickets and many off-peak fares on long-distance routes. Fares in Wales typically track the increase in England, while the devolved administration in Scotland follows a similar formula and mirrored the rise across the rest of the UK in 2022.Annual regulated fare rises, implemented in January, were traditionally calculated using the RPI plus one formula based on the previous July inflation data. But ministers intervened when setting the increase for this year, keeping it at RPI, which was 3.8 per cent in July 2021, and delaying the rise until March.

Passenger groups have long called for the system to be overhauled to prevent commuters and other travellers facing real-terms rises in fares, particularly as the RPI inflation measure overestimates the annual pace of price rises by nearly 1 percentage point. But ministers will face a difficult balancing act when they do eventually decide on changes to fares for 2023. Any decision that substantially shields passengers from inflation would put further pressure on the rail industry’s finances. The industry is facing a funding gap of £2bn per year as ticket revenues fell during the coronavirus pandemic and is facing national strike action this summer as unions protest at efforts to balance the books by cutting staff costs. Members of the RMT are due to stage further strikes on Thursday and Saturday that are expected to bring large parts of the network to a halt.The disruption of rail services comes as ministers were warned by regional leaders this week of “significant” cuts to bus timetables when coronavirus government support ends.Mayors in northern England have called for funding to be maintained while the industry transitions to changing travel patterns post-pandemic. The emergency funding was due to run out in April but was extended until October. However, bus operators must give advance notice of timetable changes, meaning that a decision on cuts could be made in the coming days. The DfT has said it is committed to investing £3bn into bus services by 2025, but routes must be commercially viable and reflect passengers’ needs. More

Mark Sobel is a former US Treasury official and IMF representative responsible for international monetary and financial affairs. He is now US Chair of OMFIF, a think-tank. With severe sovereign debt distress now entrenched and more to come, many analysts and practitioners want to revamp the architecture for sovereign-debt restructurings. To do this they are offering reform proposals that are often incompatible with the facts on the ground. The current architecture is undeniably a messy hodgepodge. But market practitioners shouldn’t expect major changes, and should focus instead on the improvements that can realistically be made. One long imagined sweeping solution is to create a global bankruptcy regime, such as the IMF’s proposed Sovereign Debt Restructuring Mechanism of two decades ago. But the current world order is based on nation-states with differing legal political and economic systems, not global governance. Supranational bankruptcy enforcement requires a globally recognised supranational bankruptcy authority, and that does not exist. A global bankruptcy regime is a non-starter for further reasons, including possible politicisation of decision-making and that the US would not likely cede the sovereignty of US courts in core areas to a supranational body. Nor would others.Today the debt of low-income countries — the poorest nations with per capita annual incomes often little more than $1,000 per year — is generally dominated by official debt, especially to bilateral creditors such as China, while emerging-markets debt is generally to private investors. Fair or not, it’s fanciful to think that the private sector would be elevated to have an equal seat at the table with international financial institutions, and the relative seniority of official and private creditors itself at times seems to be a jump ball. These differing circumstances, plus the diversity of private creditors, means that restructurings need to be worked out on a case-by-case basis. Policymaking as a general rule is constrained by such realities as those above, so small steps, evolution and incrementalism are frequently all that can reasonably be expected. That means investors must likely work within the framework of the current sovereign debt architecture.What then can be done?The main debt-distress challenge now faces low-income countries themselves. The international community’s Debt Service Suspension Initiative provided some welcome, albeit temporary, breathing room. But deep and durable relief is essential from the G20 Common Framework. That blueprint for action has thus far been a flop, though recent developments in Zambia may offer hope. Still, the main, but not only, hindrance is tackling large-scale Chinese official lending. Chinese debt is opaque; there are bogus Beijing arguments about whether credits are official or private; the authorities prefer to roll over debt rather than address overhangs through debt reduction; and given that China is often a dominant creditor, it has little incentive to follow co-operative Paris Club-like principles. Further, it would be unwise to underestimate the private sector’s willingness to hide behind Chinese inaction.This problem has to be addressed politically. At this point, the G20 Common Framework, even if flawed, is the only game in town. The US lacks the leverage to prod China to move forward, given the current state of US/China relations. Nor does the World Bank, led by David Malpass, who is identified with US voices calling out China for “debt trap diplomacy”.The IMF is the key actor. It has commendably and quietly been working step-by-step with China. But it needs to be more publicly outspoken in pressing China to quickly reach a concrete debt-relief deal with Zambia, and using such a deal as a springboard to sign up other low-income countries.International financial crises are a staple of history and will remain so long past our lifetimes.  The messier the restructurings, the greater the damage and costs to issuers and creditors. Issuers — often with leaders who are in denial or covering up messes — are especially guilty of waiting too long to tackle woes and end up defaulting, rather than tackling stress preemptively and at less cost to society.Under the current messy system, striking a fair balance between issuers and creditors can involve multiple approaches. In recent decades, attention has focused on inserting collective action clauses (CACs) in foreign-law sovereign bonds overwhelmingly issued under UK or New York law. They allow a given majority of relevant bondholders to support a restructuring and bind all remaining holders. While they are no panacea, they were enhanced in 2014 to facilitate workouts and circumscribe holdout litigation, thus bolstering the orderliness and predictability of restructuring processes. (Full disclosure: I chaired the international working group that developed these enhancements.) CACs are now used in the vast bulk of such bonds and increasingly dominate the market. The enhanced features helped steer the recent Argentine and Ecuadorean restructurings to a successful outcome.But CAC-type provisions are still needed in an array of other debt instruments, such as syndicated loans, subsovereign borrowings, and others. The international community should apply pressure to creditors and issuers to encourage the introduction of such provisions. This goal should be within reach if sleeves are rolled up. A G7 working group has focused on the matter, but appears so far to have little to show for its work.Many analysts believe state-contingent debt instruments, linking a sovereign’s debt service more closely to its repayment capacity, could introduce greater flexibility into possible restructurings and better balance the interests of issuers and creditors. But such instruments have not taken off, despite decades of analysis, because of several issues — can one trust issuing authorities to provide accurate data; will such instruments cost issuers more than plain-vanilla paper; can such instruments be easily sold when liquid markets for them don’t exist? Perhaps they will become more popular in sovereign-debt restructurings, the way catastrophe bonds have. But the lifting required may be far heavier and uncertain than updating contracts for syndicated loans or subnational borrowings.Debt data — both official lending and issuers’ debts — are opaque indeed. This terrain should be ripe for harvest. The private sector has a legitimate beef when it complains that it can’t trust official data and thus it is operating blindly when it has to contribute to restructurings. But it also uses this argument to hide behind official creditors and drag its feet in participating in restructurings. The IMF, World Bank and others should roll up their sleeves in their insistence on far greater public transparency from all borrowers. Key recent initiatives to enhance debt transparency seem to be bogged down.The line-up of private actors who hold emerging-market debt now comprises banks, passive and active funds (the latter including distressed debt funds), and others, many with differing interests. Yet private-sector participants have one thing in common: they are self-declared experts in analysing and pricing sovereign credit risk. They tout their due-diligence work and argue that they understand and are ready to assume the risks they take in order to secure strong rewards for clients. Nonetheless, when “high-end” shirts are lost (or when expected payouts are not achieved), the first response is almost never for those wearing “designer” shirts to accept the consequences of their mistaken risk/reward assessments. Rather, it appears to be a visit to countries’ executive branches — including bureaucrats wearing cheap shirts — and legislatures to lobby furiously for smaller losses or greater returns, and even to litigate in courts with imaginative and inventive legal interpretations. Shifting the current balance of power away from issuers to creditors in a restructuring — through rewiring bond architecture, limiting countries’ sovereign immunity and facilitating attachments, and imposing greater burdens on the already struggling vulnerable citizens of distressed countries — hardly seems to be a tenable path forward.Further, the IMF — often the world’s debtor-in-possession financier — should re-examine its role in helping strike this difficult balance. The IMF sets the financing parameters for creditor payments in a restructuring through its programs and debt-sustainability work, which allocate the financing of gaps between country reforms, new money and debt relief. The outcome for sustainability depends heavily on future performance assumptions, especially around growth and the primary balance. But excess IMF optimism can involve pretending that countries face illiquidity and not insolvency, letting creditors avoid significant upfront losses and blithely dissembling that debt can simply be rolled over and extended. In contrast, stricter and more steadfast realism (and less fear of haircuts) could avert harsher economic country restraint, help remove countries’ debt overhangs and pave the way for better country investment and growth outcomes.The days of gunboat diplomacy are behind us. So are the days of locking a few bankers in a room to sort it out. Perhaps the world was tidier then. But the current reality of sovereign debt architecture is, for better or worse, a messy affair. And it’s one that is here to stay, even as marginal improvements are achievable. More

Two of the biggest US retailers have eased concerns of a recession, reporting resilient consumer spending even though sharp food and fuel inflation are weighing heavily on their customers.Walmart, the world’s largest retailer, said it had seen glimmers of improvement in recent weeks despite its most price-sensitive shoppers trading down to cheaper groceries. Home Depot, the DIY chain, said spending on home improvement had been “incredibly high”, with its business accelerating in recent weeks.Two profit warnings from Walmart since May had rattled investors looking for clues about how US consumers have adapted to historically high inflation and rising interest rates.But the retailer on Tuesday reported stronger sales and profits than expected in the three months to July and forecast a smaller decline in full-year earnings than it had warned investors about just three weeks ago.“We finished the quarter on a strong note,” said John David Rainey, Walmart’s new chief financial officer. Traffic to stores picked up in July and August, he added, and the back to school season was “off to a solid start”.Home Depot reported its highest quarterly sales and earnings on record, saying that consumers were spending on home improvement despite high inflation and mortgage rates.Chief executive Ted Decker told analysts on Tuesday that there were still many “cross-currents” in the US economy, but savings rates, the labour market and wage growth remained strong.Walmart’s reported earnings of $1.88 a share for its fiscal second quarter were up 23 per cent year on year and exceeded analysts’ consensus estimate of $1.62 per share.Coming on the back of an 8.4 per cent increase in revenues to $153bn, however, the figures showed the effect of inflationary pressures on Walmart consumers, many of whom have cut spending on clothing and general merchandise as their petrol and grocery bills have risen.Lower-income consumers were trading down from deli meats to cheaper hot dogs, canned tuna and chicken, Rainey said. However, Walmart chief executive Doug McMillon added that the company was gaining market share as higher-income shoppers turned to its stores and ecommerce services to save money.As it had warned in July, inflation-driven shifts in consumer spending left Walmart with excess inventory, particularly in clothing. Markdowns to clear that stock contributed to a 132 basis point decline in its gross profit margin in the quarter.Walmart’s inventories hit $60bn at the end of July, up 25 per cent year on year partly because of inflation and efforts to avoid the “lean” inventory position it faced in last year’s holiday period.

Rainey said Walmart had cleared most of its summer seasonal inventory but was still holding excess stock in electronics, home and sporting goods.Walmart now expects a 9 to 11 per cent decline in operating income over the full year, compared with its guidance last month that investors should expect a decline of 11 to 13 per cent.That outlook was based on Walmart’s expectation that the consumer environment in the third and fourth quarters of the fiscal year would “look a lot like [the second quarter]”, McMillon said.Investors welcomed the improved outlook from two of the largest US retailers, pushing Walmart shares 5.1 per cent higher and Home Depot’s shares up 4.1 per cent on Tuesday.The upbeat mood boosted shares of sector peers. Retailer Target and DIY chain Lowe’s, which report earnings on Wednesday morning, rose 4.6 per cent and 2.9 per cent, respectively. More

A decade ago, respect for central bankers peaked. With three words, Mario Draghi’s commitment to do “whatever it takes” ended the eurozone crisis and demonstrated the value of strong, independent institutions. Credible statements from trusted policymakers work wonders. But Draghi’s intervention as European Central Bank chief was the high watermark. Donald Trump complained repeatedly that the Federal Reserve’s interest rate rises between 2017 and 2019 were undermining his economic success. Describing Fed chair Jay Powell as an “enemy” of the US and his colleagues as “boneheads” were just two of many insults the former president hurled. After Trump came President Recep Tayyip Erdoğan of Turkey. He handpicked Şahap Kavcioğlu in early 2021 to be a central bank governor who could finally be counted upon to implement the president’s unorthodox idea that lower interest rates reduce inflation.Now, with UK inflation heading to double digits, Liz Truss, the frontrunner to become the next prime minister, has pledged to review the Bank of England’s independence. Her allies, such as the likely next chancellor Kwasi Kwarteng, have made implicit threats, saying, “We need to look at what went wrong”.It would be simple to present Trump and Erdoğan as cautionary tales for Truss. Powell ignored Trump’s bullying. Rightly so because, a few years on, we know the Fed’s core mistake was to tolerate too low interest rates for too long, amplifying inflation. Turkey, which cut rates on Erdoğan’s orders, now suffers an official inflation rate of 79.6 per cent in July, with many economists thinking the true rate is even higher.This inference would, however, be wrong. Many of Truss and Kwarteng’s economic positions are bizarre, but they are correct in their diagnosis that something has gone wrong at the BoE. Of course, high energy prices have contributed much to the surge in inflation, but the UK suffers from the worst of all worlds — having the US disease of excess demand, a UK-specific drop in labour supply that the BoE failed to notice, firms that feel comfortable in raising prices and workers determined to protect their wages. It is no wonder inflation is marching up to 13 per cent.When trying to defend the BoE’s independence in this environment, its governor Andrew Bailey has a problem. The traditional argument is to say that if independence were loosened, all hell would break loose and the UK would return to the high inflation of the 1970s. That has already happened. Without that card, the BoE has resorted to the risky strategy of blaming others and insisting it has made no mistakes. According to Bailey, the BoE is also a victim of high inflation and it could not have foreseen Russia’s invasion of Ukraine and the resulting rise in natural gas prices. “We don’t make policy with the benefit of hindsight,” Bailey likes to say.For those who want to protect valuable economic institutions such as the BoE, the governor’s position is impossible to support. Hindsight is valuable. It allows us to learn lessons. In any case, Bailey did not need hindsight, he just needed to listen to his chief economist in February 2021, who warned that the “greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag”.Instead, Bailey is falling into the trap described by Professor Ricardo Reis of the London School of Economics of blaming the rain for getting wet even though he was holding an umbrella. As Reis said, when you have a target of 2 per cent, inflation rates of more than 7 per cent for well over a year are almost always the central bank’s fault.The new prime minister and chancellor will be fully entitled therefore to review the central bank’s mandate. I think it is unlikely they would want to change the legal requirement of the BoE to “maintain price stability” or to use the Treasury’s reserve powers to direct the central bank’s Monetary Policy Committee.Instead, Truss might want to give the BoE a new definition of price stability. She has hinted that she is interested in a nominal gross domestic product target. Since this also rose at an annual rate of 9.1 per cent in the second quarter, it would not make a lot of difference. But Truss and Kwarteng could act perfectly within the boundaries of the BoE’s operational independence to sharpen its incentives. They could amplify the importance of inflation control in the annual letter the chancellor writes to set the BoE’s inflation target. Even better, Kwarteng could write a more pointed reply to the BoE when it next has to explain an inflation deviation of more than 1 percentage point from the target. Traditionally, the BoE says that something outside its control has occurred and that it has already taken action to correct matters. The chancellor then replies with a supine acceptance of the central bank’s arguments. Instead, the chancellor’s letter should become a proper means of challenge and accountability for the BoE. While it might bruise the egos of some senior BoE officials, it would in no way send the UK down the dangerous paths of Trump or Turkey. Central bankers should welcome the additional shackles. Too much freedom and too little accountability for unelected officials is unhealthy in a democracy. [email protected] More

China’s economy continued to recover in July, but there were “small fluctuations”, Li said during a video meeting with senior officials from six major provinces – Guangdong, Jiangsu, Zhejiang, Shandong, Henan and Sichuan.”A sense of urgency must be strengthened to consolidate the foundation for economic recovery,” Li was quoted as saying.China’s central bank cut key lending rates in a surprise move on Monday to revive demand, as data showed the economy slowing in July, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a property crisis.Authorities will thoroughly implement a package of policy measures unveiled in May, and will increase the intensity of macro-economic policies to keep economic activity within an reasonable range, Li was quoted as saying.The government will take more steps to boost consumption and expand effective investment, Li added. More

Investigators say there was so much fraud in federal covid-relief programs that — even after two years of work and hundreds of prosecutions — they’re still just getting started.In the midst of the pandemic the government gave unemployment benefits to the incarcerated, the imaginary and the dead. It sent money to “farms” that turned out to be front yards. It paid people who were on the government’s “Do Not Pay List.” It gave loans to 342 people who said their name was “N/A.”As the virus shuttered businesses and forced people out of work, the federal government sent a flood of relief money into programs aimed at helping the newly unemployed and boosting the economy. That included $3.1 trillion that former President Donald J. Trump approved in 2020, followed by a $1.9 trillion package signed into law in 2021 by President Biden.But those dollars came with few strings and minimal oversight. The result: one of the largest frauds in American history, with billions of dollars stolen by thousands of people, including at least one amateur who boasted of his criminal activity on YouTube.Now, prosecutors are trying to catch up.There are currently 500 people working on pandemic-fraud cases across the offices of 21 inspectors general, plus investigators from the F.B.I., the Secret Service, the Postal Inspection Service and the Internal Revenue Service.The federal government has already charged 1,500 people with defrauding pandemic-aid programs, and more than 450 people have been convicted so far. But those figures are dwarfed by the mountain of tips and leads that investigators still have to chase.Agents in the Labor Department’s inspector general’s office have 39,000 investigations going. About 50 agents in a Small Business Administration office are sorting through two million potentially fraudulent loan applications.Officials already concede that the sheer number of cases means that some small-dollar thefts may never be prosecuted. Earlier this month, President Biden signed bills extending the statute of limitations for some pandemic-related fraud to 10 years from five, a move aimed at giving the government more time to pursue cases. “My message to those cheats out there is this: You can’t hide. We’re going to find you,” Mr. Biden said during the signing at the White House.Investigators say they hope the extra time will allow them to ensure that those who defrauded the government are ultimately punished, restoring a deterrent that had vanished in a flood of lies and money.President Biden signed bills extending the statute of limitations for some pandemic-related fraud to 10 years.Pete Marovich for The New York Times“There are years and years and years of work ahead of us,” said Kevin Chambers, the Department of Justice’s chief pandemic prosecutor. “I’m confident that we’ll be using every last day of those 10 years.”The federal government provided about $5 trillion in relief money in three separate legislative packages — an enormous sum that is credited with reducing poverty and saving the country from a prolonged, painful recession.But investigators say that Congress, in its haste to get money out the door quickly, designed all three packages with the same flaw: relying on the honor system.For example, an expanded unemployment benefit gave workers an extra $600 per week in federal jobless funds on top of what they received from their state. The program was funded by the federal government but administered by states, which often had loose rules around qualifying. Applicants did not need to provide proof they had lost income because of Covid-19; they simply had to swear it was true.A similar we’ll-take-your-word-for-it approach was used in two loan programs run by the Small Business Administration.Millions of Americans sought unemployment benefits during the height of the pandemic.Hiroko Masuike/The New York TimesThey were the Paycheck Protection Plan, in which the government guaranteed loans made by private lenders, and the Economic Injury Disaster Loan program, in which the government itself gave out loans and smaller advance grants that didn’t have to be repaid. In both, the government trusted businesses to self-certify that they met key requirements.Both the Labor Department and the Small Business Administration said they tried to screen those claims — and that they did reject billions of dollars’ worth of applications that didn’t make sense. But that wasn’t enough.In some cases, the programs missed schemes that were comically easy to spot: In one instance, 29 states paid unemployment benefits to the same person. In another, a Postal Service employee got $82,900 loan for a business called “U.S. Postal Services.” Another individual got 10 loans for 10 nonexistent bathroom-renovation businesses, using the email address of a burrito shop.In the Paycheck Protection Plan, private banks were supposed to help with the screening, since in theory they were dealing with customers they already knew. But that left out many small businesses, and the government allowed online lenders to enter the program. This year, University of Texas researchers found that some of those “fintech” lenders appeared less diligent about catching fraud.As the virus shuttered businesses and forced people out of work, Congress and federal agencies sent relief money into programs aimed at supporting the jobless and helping the economy stay afloat.Brittainy Newman/The New York TimesIn another case, a mother and daughter in Westchester County, N.Y., stand accused of turning fraud into a franchise — helping other people cook up fake businesses in order to get loans from the Economic Injury Disaster program.Andrea Ayers advised one client to tell the government she ran a baking business from home, although she was not a baker, prosecutors said.“You bake,” Ms. Ayers texted to the client, adding four laugh-crying emojis, according to charging documents.“Lol,” the client wrote back.The scheme was designed, prosecutors said, to take advantage of the Small Business Administration’s advance grant program, which provided applicants up to $10,000 up front while the agency decided whether to award an a larger loan. Even if the loan was rejected, in many cases the applicant could still keep the grant.Prosecutors said that Ms. Ayers’s daughter, Alicia Ayers, texted another client that the small size of the grants meant they were unlikely to be punished: “10k is not enough for jail time lol.”The government charged both Ayerses with wire fraud. They have pleaded not guilty. Their lawyers did not respond to requests for comment.In some corners of the internet, schemes to defraud were discussed in chat rooms and YouTube videos, where scammers offered to help for a cut of the proceeds. Some used the money on necessities, like mortgage bills or car payments. But many seemed to act out of opportunism and greed, splurging on a yacht, a mansion, a $38,000 Rolex or a $57,000 Pokemon trading card.Vinath Oudomsine bought a $57,000 Pokemon card after receiving a pandemic loan from the Small Business Administration for a nonexistent business.U.S. Attorney’s Office for the Southern District of GeorgiaVinath Oudomsine bought the Pokemon card in January 2021, after receiving a loan from the Small Business Administration for a nonexistent business. He pleaded guilty to defrauding the loan program in October 2021, leaving the U.S. government responsible for selling the card.Pandemic fraud became such an open secret that it ceased to be much of a secret at all. In September 2020, a California rapper named Fontrell Antonio Baines, who performs as Nuke Bizzle, posted a music video on YouTube, bragging in detail about how he’d gotten rich by submitting false unemployment claims. His song was called “EDD,” after California’s Employment Development Department, which paid the benefits.“I just seen 30 cards land in one day. Got straight on the phone and activate,” Mr. Baines rapped in the song, flashing cash and envelopes with preloaded debit cards from the state.“Unemployment so sweet,” Mr. Baines said.All three of those programs are now over. There is no official estimate for the amount of money that was stolen from them — or from pandemic-relief programs in general. The Justice Department has charged people with about $1 billion in fraud so far, and is investigating other cases involving $6 billion more, investigators said.But other reports have suggested the real number could be much higher. One official said the total of “improper” unemployment payments could be more than $163 billion, as first reported by The Washington Post. In the Economic Injury Disaster Loan program, a watchdog found that $58 billion had been paid to companies that shared the same addresses, phone numbers, bank accounts or other data as other applicants — a sign of potential fraud.“It’s clear there’s tens of billions in fraud,” said Michael Horowitz, the chairman of the Pandemic Response Accountability Committee, which includes 21 agency inspectors general working on fraud cases. “Would it surprise me if it exceeded $100 billion? No.”The effort to catch fraudsters began as soon as the money started flowing, and the first person was charged with benefit fraud in May 2020. But investigators were quickly deluged with tips at a scale they’d never dealt with before. The Small Business Administration’s fraud hotline — which had previously received 800 calls a year — got 148,000 in the first year of the pandemic. The Small Business Administration sent its inspector general two million loan applications to check for potential identity theft. At the Department of Labor, the inspector general’s office has 39,000 cases of suspected unemployment fraud, a 1,000 percent increase from prepandemic levels.But prosecutors face a key disadvantage: While fraud takes minutes, investigations take months and prosecutions take even longer.Mr. Baines, who detailed his jobless benefit scheme on YouTube, was arrested in September 2020, when Las Vegas police found other people’s unemployment-benefit cards in his car. Mr. Baines pleaded guilty to mail fraud last month. His attorneys declined to comment.Fontrell Antonio Baines, a rapper who performs as Nuke Bizzle, posted a video in which he bragged about getting rich by submitting false unemployment claims.Nuke Bizzle, via YouTubeHannibal Ware, the Small Business Administration inspector general, said his office has tried to focus on cases involving large thefts, career criminals or ringleaders who organized a fraud operation.“Only about 50 working field agents, right? So how do I take one of my agents off of a $20 million case to work a $10,000 case?” said Mr. Ware, who is known as Mike. “Because they will tell me, ‘Mike, the work is the same.’”That has allowed many individuals who took advantage of government programs to go unpunished. Despite ample evidence of people fraudulently obtaining $10,000 advance grants, Mr. Ware’s office has not sought charges for cases involving only a single grant, falsely obtained. It would cost more than $10,000 just to investigate each one.In all, that program awarded 3.9 million loans totaling about $389 billion, on top of $27 billion in grants that did not have to be repaid, according to the Small Business Administration. Many of the allegations of fraud in the grants program date to the first weeks of the pandemic, when the government gave out 5.8 million advance grants worth $19.7 billion in just over 100 days. In that program, fraud was easy to pull off, according to a government watchdog, which cited numerous loans given to businesses that were ineligible for funding.Mr. Ware said that he recently limited his agents to working 10 cases at a time, telling them, “You’re killing yourself. I have to protect you from you.”In some cases, lawyers for those charged with committing pandemic fraud have sought to argue that their clients should be judged less harshly for stealing because the government made it so easy.The government “was handing out money with no checks and a lot of people took advantage of that,” Ashwin J. Ram, an attorney for convicted fraudster Richard Ayvazyan, told The New York Times in November.“It’s a honey trap,” he added. “Richard Ayvazyan fell into that trap.” Mr. Ayvazyan was sentenced to 17 years in prison for participating in a ring that sought $20 million in fraudulent loans.Richard Ayvazyan was convicted in a scheme to steal $20 million in Covid-19 relief funds.Gary Coronado/Los Angeles Times, via Getty ImagesIn the case of Mr. Oudomsine, the Pokemon card purchaser, his lawyers argued in March that a judge should be lenient in deciding his sentence because the fraud had taken hardly any time at all.“It is an event without significant planning, of limited duration,” said lawyer Brian Jarrard, who was Mr. Oudomsine’s attorney at the time.That didn’t work.U.S. District Judge Dudley H. Bowen Jr. sentenced Mr. Oudomsine to three years in prison, more than prosecutors had asked for, to “demonstrate to the world that this is the consequence” of fraud, according to a transcript of the sentencing.Now, Mr. Oudomsine is appealing, with a new lawyer and a new argument. Deterrence, the new lawyer argues, is moot here because the pandemic-relief programs are over.“There’s no way to deter someone from doing it, when there’s no way they can do it any longer,” said David Rafus, Mr. Oudomsine’s new lawyer.Biden administration officials say they’re trying to prepare for the next disaster, seeking to build a system that would quickly check applications for signs of identity theft.“Criminal syndicates are going to look for weak links at moments of crisis to attack us,” said Gene Sperling, the White House coordinator for pandemic aid. He said the White House now aims to build an ongoing system that would detect identity theft quickly in applications for aid: “The right time to start building a stronger system to prevent identity theft is now, not in the middle of the next serious crisis.”In the meantime, the arrests go on.Last week, prosecutors charged a correctional officer at a federal prison in Atlanta with defrauding the Paycheck Protection Program, saying she had received two loans totaling $38,200 in 2020 and 2021. The officer, Harrescia Hopkins, has pleaded not guilty. Her attorney did not respond to a request for comment.“You can’t have a system where crime pays,” said Mr. Horowitz, of the federal Pandemic Response Accountability Committee. “It undercuts the entire system of justice. It undercuts people’s faith in these programs, in their government. You can’t have that.”Seamus Hughes contributed reporting. More