Or maybe someone didn’t realize the amount to which Aussies like to drink and be merry at this time of year, thereby underestimating liquidity in Australia today?!  The image to the right (click on it if you can’t make it out) is the ASX 200 futures intraday price action for the past few days.  Take a look at the prints into the close today, jamming the index up approximately 6.5% instantaneously!  The index on which these futures trade represents the largest 200 index-eligible companies in Australia; the futures outstanding at the moment represent a little over $AUD27,000,000,000 in exposure.  I imagine there were a few happy sellers into today’s close!  Unlike the trade cancellations with Google and Rohm and Haas I put up a little while back, the Australian futures exchange did not cancel these trades.  Buyer beware on those limit orders down under…

Americans seeking mortgages aren’t getting the full benefit of record low yields on Treasuries and government-supported mortgage bonds, blunting U.S. efforts to curb the housing crisis.

While the average rate on a fixed 30-year mortgage fell to 5.18 percent last week from 6.47 percent in October, according to Mortgage Bankers Association data, the historical relationship between home loans and mortgage bonds shows rates should be at least half a percentage point lower. Though the U.S. is paying nothing to borrow in some cases, homebuyers are paying about $730 more a year then they would otherwise on a $200,000 mortgage.

The demise of lenders including Countrywide Financial Corp. of Calabasas, California, and Seattle-based Washington Mutual Inc. reduced competition as refinancings soar. At the same time, surviving mortgage banks face a credit crunch that limits their lending ability, industry officials say.

“Lenders have raised their prices over the last few weeks because of capacity concerns amid all this additional business,” said Brian Simon, chief operating officer at Freedom Mortgage Corp. The Mount Laurel, New Jersey-based firm is among the five biggest independent mortgage companies.

Even though mortgage rates have fallen, the decline hasn’t kept pace with the slide in yields on bonds backed by the loans. Yields on Fannie Mae’s 30-year current-coupon mortgage securities fell to about 3.80 percent today as of 8:30 a.m. in New York, from 6.04 percent on Oct. 31. Mortgage bond yields help determine what lenders must charge to make a profit when selling the debt, which in turn provides cash for new lending.

Widening Spreads

difference between the average rate on a typical fixed-rate loan and Fannie-guaranteed securities widened to more thanone percentage point last month for the first time in at least a decade, rising to more than 1.4 percentage points yesterday, data compiled by Bankrate.com and Bloomberg show. The average over the past five years is 0.14 percentage point.

Almost $6.7 trillion of U.S. home-mortgage bonds were outstanding on Sept. 30, and about 70 percent of those were guaranteed by government-chartered Fannie and Freddie Mac or federal agency Ginnie Mae, according to Federal Reserve data.

The Treasury market is about $5.7 trillion. Investors charged the U.S. zero percent interest when the government sold $30 billion of four-week bills on Dec. 9. The yield on the benchmark 10-year Treasury note has fallen to 2.19 percent from 4.08 percent in October.

About $1.1 trillion of so-called agency mortgage securities have been created this year, about the same as in 2007 and up 25 percent from 2006, as banks and bond buyers shun other types of home-loan debt. The U.S. seized Washington-based Fannie and Freddie of McLean, Virginia, in September and began buying home-loan securities to lower financing rates and stem the worst housing slump since the Great Depression.

Lowering Rates

Additional moves, such as a plan being considered by the Treasury Department and backed by the National Association of Realtors to create loans with rates of 4.5 percent, may be coming because borrowing costs haven’t fallen further, said David Lykken, a consultant at Mortgage Banking Solutions in Austin, Texas, which sells advice to lenders.

The Fed said two days ago that it may expand a program that it announced last month to buy $500 billion of mortgage bonds. The spread between rates and yields partly reflects greater uncertainty about how many applications will turn into loans as rates fluctuate and approvals drop, Lykken said. Home lenders hedge against changes in bond yields with instruments such as forward-sales contracts, which can cause losses if loan-completion rates don’t match their forecasts.

Refinancing Surge

After the Fed’s Nov. 25 announcement boosted mortgage-bond prices and Treasury yields tumbled, the average rate on a 30-year fixed-rate loan fell to the lowest since June 2003, according to Mortgage Bankers Association surveys, which cover borrowers with good credit and 20 percent down-payments.

The drop spurred a flood of loan applications from homeowners to refinance their loans, causing the mortgage trade group’s index measuring such activity to rise to 4,156 in the week ended Dec. 12 from 1,254 for the period ended Nov. 21.

The increase taxed lenders who fired employees earlier this year, making them reluctant to bring in business with more competitive rates on concern they couldn’t keep up. “Our mortgage volume has quadrupled from a month ago,” said Bob Walters, chief economist at Quicken Loans Inc. in Livonia, Michigan. “I have no doubt other people’s numbers have done the same thing.”

Failed Companies

A larger gap between rates and yields usually implies bigger profits for lenders, though a need to hire temporary workers and pay overtime rates can boost expenses during origination booms. “The issues include space, people and computers,” said Steve Jacobson, chief executive officer of Fairway Independent Mortgage Corp., a Madison, Wisconsin-based lender. “A few weeks ago we were concerned about things being slow in December and January, and now it’s like, how are we going to get through December and January?”

More than 100 mortgage companies have failed since the start of last year because of a record jump in U.S. foreclosures and a collapse in demand for loans outside Fannie, Freddie or federal-insurance guidelines. Since June, Countrywide, Washington Mutual and Charlotte, North Carolina-based Wachovia Corp., three of the top eight lenders, were acquired by rivals.

‘Disappointed’

The credit crunch for remaining non-bank lenders such as Taylor, Bean & Whitaker Mortgage Corp., the largest independent mortgage company, is also limiting options for home buyers. The firms rely on increasingly scarce credit lines to make new loans, and then hold the mortgages until they’re sold. Taylor Bean Chairman Lee Farkas said in October that he was “disappointed” banks weren’t using U.S. capital injections to expand credit lines, after his capacity contracted to $3 billion from $7 billion in July 2007. That left the company able to hold 57 percent fewer loans.
 
“Even the big money center banks” that provide credit lines and make mortgages are restraining loans meant for quick sales as they cut risk-taking and seek to maintain ratios between capital and assets, Freedom’s Simon said. “Lenders are coming in and out of the market much more rapidly on price than they have in the past.”

Not a bad one from Hal Norman.

Anyone paying even moderate attention to the headlines during all these bailout and bankruptcy hearings will be aware of the focus that’s been placed on executive compensation.  It’s an interesting topic.  In a crisis like this the public needs someone or a collective group of people at which to point the finger of blame.  Executives are easy targets because, in the public’s eye, they are the ones who have were responsible for the risk their firms were taking and should be the ultimate decision makers for a given company.  The fact that these executives have taken home exorbitant pay checks during the run-up to the crises makes the public even more irate at the lifestyles of these top dogs.  Sure, Joe the Plumber is probably a little irked at losing a significant portion of his retirement during the past few months; but if Joe’s retirement was invested in stocks and commodities then stiff cheddar, there’s a reason that stocks have returned in excess of bonds since the beginning of time and it’s called risk.  So if you invested money that you couldn’t afford to lose in the short-term, dry your eyes and tell your story walking. 

But that’s really beside the point, back to executive compensation…  I have no doubt that the American public is struck with a little jealousy over the inordinant amount of money collected by the top brass of American corporations.  If you’re reading this can you honestly say that you wouldn’t like to be collecting the median executive pay packet of $2,050,000?  I know I can’t.  Am I jealous?  I don’t know if jealous is the correct verbiage.  I have a certain amount of respect for someone who’s made their way up the corporate ladder of an American institution: they’ve no doubt endured many years of big-company-bureaucracy and politics to make it where they are; they’ve probably had to gain entrance to one of the nation’s top postgraduate business or technical schools along the way, which is no mean feat; and it’s likely they’ve had to work a great deal of 80+ hour weeks during their decades-long career to make it into the Golden Parachute Club.  Should the big wigs have understood a little more about the asset-backed securities their firms were underwriting or buying?  Yep, it would have been nice.  Could the compensation structure of the big banks’ money making engines be revisited to reassess the conflict of interest between risk taking and protecting shareholders?  Yeah, that’s possible too.  Is it necessary for the executives of these corporations to have private jets in which to whiz about the world?  No, I don’t really think so.  But I can tell you one thing, capping the compensation of executives isn’t really going to solve anything. 

American society feeds on greed.  It feeds on greed and competition, which is why it’s viewed by many as the epitome of a capitalistic society.  No other society in the world collectively strives more to achieve more, acquire more, win in the the face of adversity.  It’s a broad generalization, and I don’t think necessarily it’s a bad trait, it’s one of the reasons that such a massive proportion of our planet’s wealth is concentrated in the hands of so few; but it is one of the tenets of American society and the reason that capping executive compensation is going to be gone with the wind as soon as the USA realizes a quarter of positive GDP growth.  Why?  I’ll tell you why.  For the same reason that the cheapest gas station in town is always the busiest, the reason why comfortable middle-class citizens will drive five minutes out of their way to save $0.02 per gallon to fill up their vehicle.  If a successful executive has their salary capped or even cut this year they may stay on as a sign of good will, the may consider it a challenge to right their ship after such an economic crisis, a way to repay their shareholders for years of taking home million of dollars worth of compensation.  But I can tell you one thing: executives that have had their pay cut or capped won’t be around for years to come if their salaries and bonuses continue to come under scrutiny.  They’ll just walk down the street to the next cash-rich giant that hasn’t used bailout money or doesn’t have shareholders who are overly concerned with the pay packets of their big wigs.  That’s what this society’s built on, if Americans didn’t always strive for more we wouldn’t be reading about inflated salaries and bonus pools in the first place.

Written by Michael Lewis

Recently I received a letter from a young employee of a well-known financial firm, who asked that I not mention his full name, his employer or anything else that might give him away. Though a bit short on self-pity and self- dramatization, this letter was otherwise a fine example of a sort I’ve received often these past few months.

“I am writing you for advice,” Anthony (let us call him) began. “I graduated in May of 2008 and since July have spent my time entangled in the culture of (his well-known New York bank).

I’m thinking about leaving. My dad labored his whole life so I could have the opportunity to do something like this, so leaving isn’t exactly what I want to do. I know if I stay here I could work unbelievably hard and move through the ranks, or maybe move firms… (but) I guess I’m starting to question the whole securities industry.”

The young man went on to concede that what attracted him to Wall Street was the chance to get rich quickly, and the excitement – but that both of these things now seem gone forever.

“So I have this plan to go to Hollywood,” he wrote, but then instantly undermined himself. “I feel confused, a little stupid, but yet somewhat confident. I mean, I read your book, I figured out how to get to Wall Street from a non-Ivy League school, and I got here. The only question now is, if I leave, where do I go?”

Let me try to help sort it out:

Dear Anthony,

On several occasions I have taken my own advice and it has almost killed me, and so I’m a tad uneasy about offering it up to you. But if you promise not to take it any more seriously than I do, I’ll answer you as best I can.

Let’s start by putting your problem into perspective: You still have a job. You work at one of the world’s biggest banks.

It’s true: The thrill and money is rapidly being drained from such places. Your big bank, like all the other big banks, seems to be in the process of being nationalized – thus the longer you stay the more you may find yourself in something resembling a government job.

But that’s not all bad: Government jobs are secure. You are also young, in your early 20s, and without a family to support.

That is, unlike the vast majority of the people on and off Wall Street, you have the luxury to wallow in your misfortune.

Now let’s wallow. We’re at the beginning of a recalibration of the role of finance in global economic life. The excitement and the money that attracted you to Wall Street will probably not return for a long time. If these really are the only reasons you became a financier you probably should find something else to do with your life.

Hollywood Lurch

But before you go lurching into Hollywood let us make sure you aren’t simply repeating the mistake you made by lurching onto Wall Street. That is, let us focus less on your immediate condition – safely employed but disillusioned – to the habits and beliefs that led you into it.

You were never exactly wrong. If you’d been born 10 years earlier and behaved exactly as you have done, your career might well have made you as rich and seemingly successful as you imagined your father wanted you to be. You simply came to Wall Street too late, and are in the strange position of a man who won the lottery on the first day there was nothing in the pot.

The mistake you made, in your view, is to have played the lottery on the wrong day. The mistake you made, in mine, was to have played the lottery at all.

There’s a question you might ask yourself: Am I looking for a job, or a calling? On the one hand the importance you attach to your career suggests a desire for a calling; on the other, your instinct to abandon your chosen career the moment it ceases to offer an easy path to fame and fortune, suggests that what you’re really in the market for is a job.

Job Versus Calling

The distinction is artificial but worth drawing. A job will never satisfy you all by itself, but it will afford you security and the chance to pursue an exciting and fulfilling life outside of your work. A calling is an activity you find so compelling that you wind up organizing your entire self around it — often to the detriment of your life outside of it.

There’s no shame in either. Each has costs and benefits.

There is no reason to make a fetish of your career. There are activities other than work in which to find meaning and pleasure and even a sense of self-importance — you just need to learn how to look.

Reading between the lines of your letter I sense that some of your anxiety is caused by your desire for the benefits of each – job and calling – without the costs. Perhaps that is what led you to Wall Street in the first place, and why your mind now turns to Hollywood.

Doing Well

What Wall Street did so well, for so long, was to give people jobs that they could pass off to themselves as well as others as callings. Such was their exalted social and financial status: Wall Street jobs made people feel special without actually having to be special. You never really had to explain why you were doing it — even if you should have.

But really, the same rule that applies to properly functioning financial markets applies to other markets: There’s a direct relationship between risk and reward. A fantastically rewarding career usually requires you to take fantastic risks. To get your seat at the table on Wall Street you may have passed through a fine filter, but you took no real risk. You were just being paid, briefly, as if you had.

So which is it: job or calling? You can answer the question directly, or allow time to answer it for you. Either way, I think you’d be happier if you stopped thinking of what the world had to offer you, and started thinking a bit more about what you had to offer the world. Real excitement isn’t just in whatever you happen to be doing, but in what you bring to it.

In the end, you have to look for it not on the outside, but on the inside. In my experience, if you find it, the other stuff will take care of itself.

A selection of excerpted responses to Michael Lewis’s “Job Versus Calling” article posted above.  I’ve kept the typography true to the senders, while their names are withheld.

I’m a radio engineer & build radios for rockets and satellites…..all I ever talked about since jr. high school. I think it was a calling & agree that you build your life around a calling to the detriment of your life outside the calling. I agree with you on this point. In fact I’m at work now at 6:16pm.

Think a lot if us out there are asking ourselves those very questions. I was fortunate enuf to play the game for 15 years (and still am, though I feel as if I’m as close as a Gen X’er can be to a D-day soldier storming the beaches, watching my friends go down beside me, amazed I’m still standing) so I think its easier to pursue a calling w/out having to worry abt ur next paycheck. Truly hope the next generation of smart kids does something with their lives. Its only now, at 38, that I’m going to try to do something with mine that means more than just where the next trade is.

Your piece really resonated the theme of the sense of entitlement of the generation currently of this vintage. Excitement? Satisfaction? Fulfillment? I remember graduating in ’82 during a similar difficult environment and was more than grateful to be making photo copies at Kidder, Peabody!

I think there are a ton of guys just like this. People who came to Wall Street not because they enjoy finance but because they thought it was the fastest way to make a quick buck!

I wanted to make a comment and perhaps you could pass it one to the guy who wrote to you.
To Anthony: Even if you find your calling, conditions might not permit it, and that pursuit could be costly. If you decide to make the leap, ask yourself if you can live with the worst case scenario.

I think your assessment of the impact of the decline on young people in the industry captures the essence of the mood here in NY and elsewhere.
As a 25 year-old hedge fund employee, and former boutique Investment Bank employee, I sympathize with ‘Andrew’. For better or worse, however, the majority of my cohorts seemed to either ignore or not fully appreciate the irrationality of entering a perceived ‘no-risk’ career path such as Investment Banking. . . .
I, for one, feel fortunate to be a young man witnessing the historic events of 2008 despite the stress related to the fallout. These stresses surely pale in comparison to the stresses of those with real responsibilities . . . .

THE WHINING HAS TO STOP…. THANKS FOR PUTTING SOME PERSPECTIVE OUT THERE… PREPARE, WORK HARD, HOPE FOR LUCK, AND WORK HARDER… THE SENSE OF ENTITLEMENT FOR EMPLOYMENT AND RICHES HAS TO STOP…

I have just sent your “calling vs job” piece to every member of my family between the ages of 14 and 22.

Please do not take this personally but I have significant issueswith your latest piece.
Why is it always wealthy, highly educated . . .highly compensated, people telling everyone else that money doesn’t equal happiness? That people should follow their dreams — even if they lead them right into the poorhouse?
I know why I am in finance — partly because I enjoy the action and the excitement of life on the trading desk and also because I know what I want.
I want private school for my kids, I want my kids to go to a better university than Michigan, I want the Porsche S-1 one day, I want the apartment in the city and the summer home and yes, I want to marry a beautiful woman who shares certain values.
None of the above happens if you are a broke high school math teacher or a mediocre screenwriter.

I have discussed the calling/job distinction with many bright young people over this time. I have also matured to understand this distinction’s application to myself very much as you have.
As a kid I thought I had a knack for certain things. Eventually I realized that these skills combined to make me a likely architect. But one day, I realized that I had a calling. That I was MEANT to be an architect and that I was going to be one no matter where I worked. I realized I would be happy to be an architect no matter how much money I did or did not make. I even realized that I would do the job with or without compensation.
Today, I feel as if it is almost impossible for me to be without work. I am doing what I am, and I pretty much invent my own work. (Unlike my Wall Street Harvard MBA brother-in-law.)
I often tell my student/employees that I have not needed an alarm clock for 26 years. They say that they need one because they can’t be late. And I say “I don’t need one because I can’t wait to start”.

“Anthony” is a perfect example of the age of entitlement. I’m surprised that you were so soft on him. . . .

Oh please come on. The truth is that a lot of guys got into the securities business over the last several years of the bull market who had no business being here. This business has had ups and downs before and the people who are in it because it’s their calling in life will be just fine over the long term. The guys who hated it and got in just for the money will get deservedly shaken out. And good riddance i say.

I have never viewed my job in investment banking – debt capital markets to be exact – as some higher level calling. I was never a high level m and a guy or flashy trader bringing home boatloads of cash but managed to make good money by my view given my Dad never made more than 40K a year his whole life.
My job afforded me the ability to travel – to own a place in Costa Rica where I love to surf and other amenities. I have always looked at it as a job that allowed to buy far more surfboards than I really need! Youth today has been brainwahshed into thinking they can have everything they want at all times with no tradeoffs – they are finding out life does not work that way.
So I will likely continue to slog it out with my simple reward being another trip to Costa and a perfect wave at sunset. Not the worst gig in the world.

What if you don’t know what you have to offer the world but you know you want to offer something really, really good and you know that you must have something to offer (if only because its too unbearable to think that you may have nothing to offer anyone of any value)?

Anthony himself did not respond to an e-mail seeking comment.

Scary stuff, thanks Sergey Gerasimov for the post (click on the image below for the whole article).

The number of days the S&P 500 has moved up or down more than 5% during the trading day:

1950 – 2006 = 34 days
January 1 – September 30 2008 = 20 days
October 1 – December 3 2008 = 22 days

This pisses me right off. I pulled this off my newsfeed this morning. As I mentioned in Bail Out My Mortgage, skirting what is owed on delinquent mortgages is just despicable. Until the U.S. gets rid of non-recourse mortgage laws, it’s always going to be too easy for borrowers to walk away and give the keys to the bank when the property value falls below the amount owed on the loan. Non-recourse mortgages give homeowners a free put option on the value of their property, and a tax deductible interest payment to boot; who wouldn’t want a piece of that pie?!

Homeowners fleeing underwater mortgages in California and Florida know where to come up for air: Texas.”Texas is an extremely friendly place to live if you owe money and do not want to pay,” said Marjorie Britt, a bankruptcy attorney with Britt & Catrett PC in Houston.

“If you have a lot of money and even more debt and want to shelter your assets, you can live fairly normally.”

Distressed borrowers can hang on to luxury cars, a primary residence, paychecks, retirement accounts, and even jewelry that creditors might claim elsewhere, Britt said.

A still-robust job market draws nonresidents trying to get away from houses worth less than what they owe on the mortgage, said Jay Westbrook, a business-law professor at the University of Texas in Austin.  These newcomers find employment, buy a home in Texas, and mail lenders the keys to the house they abandoned.

Texas bankruptcy filings involving delinquent out-of-state mortgages increased by at least a third in the past year, said Jan Northrup, a lawyer with Hughes Watters Askanase and a bankruptcy trustee in the U.S. District of Southern Texas.  Many involve people who moved from Florida, California, Colorado or Arizona, she said.

“We’re especially seeing people who were using their credit cards to pay their mortgages, hoping their houses would sell, who were just digging themselves deeper into a hole,” Northrup said.

Tough to Collect

Lenders in most states can sue to recover the difference between the mortgage balance and proceeds from selling the repossessed house, Westbrook said. Once a borrower has relocated to Texas, such judgments can’t be satisfied with alimony, child support or garnisheed wages.

“You can’t escape collection actions in Texas,” Britt said.  “But can they actually force you to pay them?  No.”

With U.S. bankruptcies on the rise, claims in Texas courts may come under closer scrutiny.  Banks may fight borrowers who bought new homes in Texas “after the creditors were circling like wolves,” Northrup said.

The value of homes and assets that can be retained after bankruptcy is stipulated under U.S. law, while each state sets its own parameters.  Debtors may file under the federal code or under their state’s exemptions, Northrup said.

Million-Dollar Pension

Texas has the most generous provisions for what debtors may keep, far more than other states, said Wayne Kitchens, a bankruptcy attorney with Hughes Watters Askanase in Houston.

“We’ve seen people come in with pensions of over $1 million, and they can’t be touched,” Northrup said.

Creditors can’t tap Texans’ pensions, life-insurance policies, annuities, or properly funded IRA and 401(k) retirement plans.  As much as $240,000 per child in a 529 college-savings account can be sheltered, Britt said.

Debtors may save a primary residence in Texas of any value, as long as it occupies no more than 10 acres within a city or 200 acres in a rural area.  That compares with a $20,200 homestead-equity exemption for an individual under the federal code.  New York and California allow $50,000, while Tennessee and Kentucky grant $5,000, according to the statutes.

The Texas exemptions allow a family to keep as much as $60,000 in personal property, compared with less than $40,000 under the federal code.

A Saudi Arabian supertanker filled with two million barrels of crude oil was hijacked off east Africa and is now anchored close to the Somalian coast, the U.S. Navy and its owner said.

Pirates directed the Sirius Star, the largest merchant ship ever seized, to the Eyl coastal area to the north of Somalia, navy spokesman Lieutenant Nate Christensen said by phone from Bahrain today.  Saudi Arabia’s state-owned shipping line, Vela International Marine, said it created negotiation teams to free the vessel and its crew of 25.

“What we’ve seen typically in the past, the vessel will be held in anchorage off the coast in a pirate stronghold, for want of a better word,” Christensen said.  “We’ve had no communication.  Sometimes it’s a couple of hours, sometimes a couple of days.”

Ships passing close to Somalian waters carry oil from the Middle East via the Suez Canal and Asian-made goods to Europe and the U.S. Some companies including Odfjell SE, the world’s largest chemicals shipping line, have said they will shun the canal because of the attacks off Somalia, threatening one of Egypt’s biggest foreign-currency earners.  Oil rose more than 1% on concerns about supplies.

Frontline, the world’s largest owner of ships and the tanker’s proprietor, said it may divert vessels from the area though it has yet to make a final decision about sending carriers away from Somalia, Jens Martin Jensen, interim chief executive officer of the company’s management unit, said by mobile phone from Singapore today.

Puntland Region

The tanker was anchored in Harardhere, a port town in the northern semi-autonomous Puntland region of Somalia, early today, Colonel Abshir Abdi Jama, a national security analyst in Puntland, said, adding that he had information suggesting the pirates had hired marine military experts.

Also today, a Hong Kong-flagged bulk cargo ship was hijacked in the Gulf of Aden.  The Delight, which has a crew of 25, was hijacked and was carrying 36,000 metric tons of wheat to Iran, the Xinhua news agency reported, citing China’s maritime search and rescue center.

About 11% of the world’s seaborne petroleum passes through the Gulf of Aden en route to the Suez Canal or regional refineries.  Shipping lines should “seriously consider” sailing around Africa rather than using the Gulf of Aden, said Simon Stonehouse, a hull underwriter at Brit Syndicates, a Lloyd’s of London syndicate.

Insurance premiums will rise and unless the Egyptian government becomes “more actively interested” in combating piracy in the region they risk damaging the business of the Suez canal, Stonehouse said.

Grappling Hooks

The pirates are likely to have fired grappling hooks at the supertanker, allowing them to scale the side of the ship using rope ladders, said Roger Middleton, an analyst at Chatham House, a foreign policy consultant in London. Middleton has researched Somalia for the past three years and piracy for nine months.

Somalian pirates have asked for $1 million ransoms on average this year, he said.  New supertankers cost $148 million, according to data from Oslo-based shipbroker Astrup Fearnley.  The Sirius Star is designed to carry more than two million barrels of crude, which at the current price would be worth about $110 million on the New York Mercantile Exchange.

Ships are normally attacked by five or six pirates, though given the size of the supertanker as many as 15 may have been involved this time, Middleton said.  Once the pirates are on board they are normally joined by others, he said.  A supertanker is bigger than the 77-story Chrysler Building.

The crew of the Sirius are “believed to be safe” and Vela is talking to their families, Vela said in an e-mailed statement today.  The crew consists of 19 Filipinos, two Britons, two Poles, one Saudi and one Croatian.

Armed Response Unlikely

Saudi Arabia is unlikely to be considering an armed response to the hijacking because it may endanger the crew, according to Nick Day, London-based chief executive officer of Diligence, a security and intelligence group.

“Once in port you’ve got several hundred people around there, heavily armed,” said Day, a former member of the U.K.’s Special Boat Service.

Somali pirates are holding 250 crew hostage on board 14 merchant ships in coastal waters, according to the International Maritime Bureau, which compiles data on piracy.  There have been 88 attacks against ships in the area since January, of which 36 were hijacked and 14 remain captive, Noel Choong, head of the bureau’s reporting center, said by phone from Kuala Lumpur today.

Somali pirates seized the Faina, a Belize-flagged vessel with a crew of 17 Ukrainians, three Russians and one Latvian, on September 25, the Ukrainian Foreign Ministry has said.  It was carrying at least 30 Soviet-designed T-72 tanks to Kenya.  The Sirius Star is anchored nearby, Puntland’s Jama said.

Every Ship Attacked

“Every single ship is coming under attack,” Captain Nasrollah Sardashti, chartering manager of the National Iranian Tanker Company, operator of Iran’s supertankers, said by phone from Tehran today.  “That’s what the captains are saying to us.”

Shipping lines are increasingly forming convoys to navigate the Gulf of Aden, he said.  The European Union last month joined the North Atlantic Treaty Organization, India, Malaysia and Russia in deploying vessels to combat piracy.

“Piracy like terrorism is a disease that affects everyone and we have to deal with,” Saudi Arabia’s Foreign Minister Saud Al-Faisal said today in Athens.

The capture of the Sirius Star on November 15, about 420 nautical miles off Somalia, was the first seizure of a so-called very large crude carrier, the biggest vessels used to carry oil.

The vessel was last tracked on November 10, leaving the Persian Gulf and bound on its original course for St. Eustatius in the Caribbean Sea, where Saudi Arabia leases oil-storage facilities from NuStar Energy LP, according to data compiled by Bloomberg.