VEON FINANCIAL SERVICES, INC. A Registered Investment Advisor

301/924--2056 December, 1996 Vol. 10, Issue 4

ECONOMIC GLOBALIZATION, GLASS STEAGALL AND THE DOW

For two years, this writer has been piecing together a gigantic global puzzle--one with enormous reach and power. The ability to understand the various pieces has been enhanced by personal attendance at over fourteen national and international conferences in the last two and a half years. Globalization and all that it entails is at the heart of this puzzle. Globalization--"the blending together of economies, people, laws, politics, monies and social ethics into one" (Joan Veon definition) -- appears to be at a crucial cross roads. In order to fully integrate the world economically, all remaining legislation pertaining to banks and investment firms, specifically the Glass-Steagall Act, must be torn down.

Representative Jim Leach, Chairman of the Committee on Banking and Financial Services, considers "the reform of the Glass-Steagall Act the most exciting comprehensive banking bill of the century and more consequential than any prior legislation excepting perhaps the Federal Reserve Act in 1913." (Speech at a conference sponsored by the American Bar Association in May) Is he correct? What in the world does this mean? What are the repercussions of this action? What will be the impact on Americans?

In the movie, "Anne of Avonlea," the young English teacher

Anne Shirley has been given a rough time at a private girls school. Those who run the school also own the town and they want this orphan out. In order to fight back, Anne's mentor presents her with an old diary found in the schools attic which was kept by the founder of the town many years ago. Anne is told, "In order to play the game, you must know the players."

There are many players in the economic globalization game. Some are known, while others operate in anonymity--which suits their purposes. As identified, they are: the Dollar/Mark/Yen, The Federal Reserve Bank, the Glass- Steagall Act, the Group of Seven and the Group of Ten, the Bank for International Settlements and two of their committees-- the Basle Committee on Banking Supervision and the Tripartite, the International Organization of Security

Commissions-IOSCO, The GATT/World Trade Organization, the World Bank/International Monetary Fund, the United Nations, and the stock market. Has the stock market performed well two years in a row because the US economy

is expanding or is it as a result of the globalization process?

The Dollar/Mark/Yen - The Currency of Globalization

When this writer started to track the drop in the dollar against the German mark and Japanese yen in 1989 and 1990, there was no comprehension as to the magnitude and scope of what it entailed. In January, 1992, this writer read the book Euroquake by Daniel Burstein, who pointed out that the dollar, yen and mark would be equal in value to one at some point in time. Today, they are equal within a ten percent differential. It does not make any difference how you convert from dollars to marks or yen, using that combination or any another combination, you get the same value within ten percent. In essence, a global currency has been birthed. The sperm was the passage of the Emergency Banking Act by Roosevelt and the egg was the severing of any relationship the dollar had to gold in August 12, 1971 when Richard Nixon closed the "gold window." It is the dollar which bore the brunt of the birth pains as it has dropped anywhere from 57.7% to 63% against the mark and anywhere from 68.1% to 77% against the yen from its original value in 1973. It is this equalization of currencies that basically is the currency of globalization.

The Federal Reserve

If you take a piece of paper money out of your wallet--any denomination--you will see these words, "Federal Reserve Note - This note is legal tender for all debts, public and private." You might ask yourself why the paper money does not state that it is a note from the Treasury of the United States? After all the Federal Reserve is not the Treasury so what is it? The Federal Reserve is a "central bank." To put it in every day terms, it is a private corporation which claims to provide a service to the people of the United States by furnishing the money which is used in our banking system.

Another way to look at it is that the monetary system of the United States is in the hands of a few very wealthy and powerful individuals who control virtually every aspect of our economy. What this means is that the power of the Federal Reserve exceeds and supersedes that of our President and Congress. The Federal Reserve is not accountable to them. They have never published an annual report and their meetings are not reported to the press until six months after they have made a monetary decision.

Have you ever considered why Americans cannot forgive themselves the interest on the federal debt? It is because they do not owe it to themselves, they owe it to a private corporation who demands interest. The next question is "How did we get a central bank?" The writer will refer you to three very fine books. * They are: The Secrets of the Federal Reserve, Eustace Mullins, Bankers Research Institute, 1993, The Federal Reserve-An International Mystery, Thibaut deSaint Phalle, Praeger Press, 1984, and Tragedy and Hope, Carroll Quigley, originally published by MacMillian, 1965. Dr. Carroll Quigley was Bill Clinton's mentor from Georgetown University and the one to whom he paid special tribute at his first Inaugural address.

To help understand how the Federal Reserve evolved and the magnitude of the impact of our whole monetary system being outside of the control of the U.S. Treasury, the following quotes are provided:

"This Act establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized...The worst legislative crime of the ages is perpetrated by this banking bill." Congressman Charles A. Lindberg, Sr., page 28, The Secrets of the Federal Reserve. (Quoted from his statement on the floor of the House on 12/22/13.)

"In this long overdue study of the Federal Reserve System in the United States, the author carefully traces the historical development of the U.S. central banking system...He points out the recurring efforts to substitute monetary policy for fiscal policy, which has resulted in inflation not only in the United States but throughout the world...." Dr. Fritz Leutwiler, Chairman of the Governing Board of the Swiss National Bank and former President of the Bank for International Settlements, p. xi, The Federal Reserve.

In looking to define central banks, Dr. Quigley says, "Notes were issued by....'banks of issue' and were secured by reserves of gold or certificates held in their own coffers or in some central reserve...There were formerly many banks of issue, but this function is now generally restricted to a few or even to a single 'central bank' in each country. Such banks, even central banks, were private institutions, owned by the shareholders who profited by their operations." (pp.54-55)

With regard to the evolution of central banks, the following were founded long before the Federal Reserve: Bank of Sweden, the oldest , in 1668, the Bank of England in 1694, the Bank of France in 1803; the Bank of Italy in 1861, the German Bundesbank in 1870, the Bank of Japan in 1882, and the Bank of Canada in the 1930s. (The Central Banks, Marjorie Deane and Robert Pringle, Viking Press, 1994)

The Federal Reserve has been amended over 195 times since its founding. One of those amendments, Section 25 (a), set up the Edge Act. It is this bill that allowed national banks to establish foreign branches in order to conduct "international or foreign banking" activities. Lastly, those who

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passed the original Act in 1913, would not recognize it today. Its power and domain far surpass what was ever realized or intended. The Fed is a very important member of the BIS.

The Group of Seven/Group of Ten

The Group of Seven (G-7) which comprises the top seven industrialized countries of the world, The U.S., Canada, France, Germany, England, Italy and Japan, represent 65% of the world's Gross Domestic Product and the majority of votes in the United Nations Security Council. They have been meeting since 1973 . President Nixon called a number of world leaders together to help manage the international monetary affairs of the world. Behind every phase of the globalization process has been the G-7.

The G-7 have their own global structure as they review and oversee the areas of finance, trade, justice, labor, employment, transportation and finance on a worldwide basis. The UN agenda is driven by the G-7 countries as a result of their economic strength and power in the Security Council.

The Information Super Highway was created and fostered by the G-7. It is the G-7 who are also structuring the world police system to combat terrorism. At the last G-7 meeting in Lyon, France, the G-7 renewed their determination to work together in partnership with leaders of other countries in our "increasingly inter-dependent and inter-active world with rapid globalization." (G-7 Final Communique from Lyon)

The Group of Ten (G-10) is an expansion of the Group of Seven as it includes Switzerland, Holland, Sweden, Belgium and Luxembourg, the countries where five of the major money centers of the world are located. (Although they control the wealth of the world, they can't add very well as seven plus five equals twelve.) The Basle Committee on Banking Supervision which is part of the Bank for International Settlements is comprised of the central banks from the Group of Ten countries.

The Bank for International Settlements

Until recently, the name Bank for International Settlements seldom made the newspapers. Operating in great obscurity in Basel, Switzerland, this institution wields even greater power than the Federal Reserve as it is considered the "central banks' bank." The BIS, operating on the global level, coordinates with the "local central bank" in each country, the material changes in domestic law necessary to bring the world monetary system into harmony or one. Over the years, it has, like the Federal Reserve, amassed greater and greater control over more aspects of the global monetary system.

According to Dr. Quigley, "...the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole....The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the worlds' central banks which were themselves private corporations. Each central bank in the hands of men like Montagu Norman of The Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbanks (Bundesbank-Germany) sought to dominate its government by its ability to control...The B.I.S. is generally regarded as the apex of the structure of financial capitalism whose remote origins go back to the creation of the Bank of England in 1694 and the Bank of France in 1803....It was set up rather to remedy the decline in London as the worlds' financial center by providing a mechanism by which a world with three chief financial centers in London, New York, and Paris could still operate as one." (Tragedy and Hope, p.324)

Ten times a year, the heads of the world's major central banks--the G10 countries--meet "at their supranational second home, the BIS at Basel....They [are] 'international freemasons,' possessing a natural second allegiance to the often lonely interest of international monetary order..." (The Confidence Game, Steve Solomon, Simon & Schuster, 1995, p.28)

It was the Bank for International Settlements which designed the present borderless flow of monies between countries when it pushed for the de-regulation of monetary laws of the

major North American, European, and Asian countries around the world, creating the monetary flow of more than $1.2T (trillion) on a daily basis. It was the BIS which also designed a number of very sophisticated investment instruments being used today, such as derivatives, futures and options. It also paved the way for trading treasury bonds on a global basis.

Remember the Stock Market Crash of 1987? That event empowered the BIS to find support for its "Basel Capital Accord" which extended the "Basel guidelines into comprehensive harmonized global rules and oversight for all financial firms," according to The Confidence Game, p.437. Solomon writes that this Accord includes foreign exchanges, securities, derivatives trading and interest rate fluctuations.

According to BIS report, "Changes in the Organization and Regulation of Capital Markets," published in March, 1987, any of the needed changes in national laws have been affected in most countries to facilitate the BIS agenda. Since every country is different, the final completion date for each country will vary. Some of the innovations encouraged by the BIS include the issuance of new issues of bonds, Treasury bills and stocks, stock exchanges, new auction procedures for bonds and the development of financial futures and/or options market.

In the U.S., these changes have come in the form of de- regulation and the tearing down of any national law which would prohibit the free flow of money in or out of the country, as embodied in the 1980 Monetary Control Act. This Act is the chief cornerstone that removed ALL of the restraints in the U.S. banking system, such as the interest rate ceiling -- Regulation Q--the amount of interest a bank could pay on deposits. It also created NOW accounts for all depository

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institutions and hence changed the definition of money which in turn changed the definition of a bank, i.e. Merrill Lynch, a brokerage firm could now offer money market fund accounts. ( The Federal Reserve, p.138 )

The 1980 Monetary Control Act also erased Regulation D which set a minimum required amount of reserves to be held by commercial banks. Because of how these laws are applied to foreign branches of U.S. banks, it led the way for capital to leave the U.S. --thus, opening up the door to the globalized world we see today.

The Basle Committee on Banking Supervision

This important and powerful committee is comprised of the central banks from the G-10 countries. This committee also works very closely with the International Organization for Security Commissions (IOSCO) in harmonizing world security exchange regulations. It has been said of The Basel Committee, as it is called, "Although the Committee focus is on supervision of internationally active banks within the G-10 countries, its conclusions are generally applicable for all banks no matter where they are...." (1995 IOSCO Annual Report) It might be noted that the G10 represents the highest concentration of money, power and wealth that there is in the world.

The Tripartite

In 1993, the Basle Committee created the "Tripartite" which is comprised of bank, securities and insurance regulators from around the world, "acting in a personal capacity but drawing on their experience of supervising different types of financial institutions. The purpose...is to identify problems which financial conglomerates pose for supervisors and to consider ways in which these problems might be overcome." The term 'financial conglomerate' means any group of companies which offer more than one financial services such as banking, securities and insurance.

They note in their report, "The Supervision of Financial Conglomerates," that "as the deregulation of domestic financial markets has progressed over the past decade in tandem with the growing internationalisation of markets, a notable development has been the emergence of corporate groups which provide a wide range of financial services" including: insurance, financial services and banking. (emphasis added) Interestingly enough, the US does not have "financial conglomerates" because the Glass-Steagall Act prohibits it.

However, in Switzerland, Italy, Germany, France, Luxembourg and the Netherlands, all banks consider securities, the ability to earn income and the syndication of stocks and bonds "as a natural part of banking activity." The three organizations which make up this Tripartite are: IOSCO, the BIS and a newly formed organization, the International Association of Insurance Supervisors-IAIS. Note the combination of financial services (IOSCO), banks (BIS), and insurance (IAIS).

As you will see, the Tripartite is "paving the way for the World Trade Organization's full passage and implementation of the "Financial Services Agreement."

Financial Conglomerate Activities

Financial conglomerates have a different meaning in each country. For example, in Switzerland, some conglomerates also carry out "leasing, factoring, foreign exchange and precious metal trading with some large universal banks holding majority or minority participation in industry, engineering, travel, hotels and other non-financial activities. In England, the majority of financial conglomerates are predominately banking or insurance. In Canada, several large life insurance companies own subsidiaries that are banks or in their terms, "near-banks." "Changes in the Organisation and Regulation of Capital Markets," March, 1987, BIS, p.xii)

In Holland, financial conglomerates developed rapidly following the liberalization of the so-called structural policy, which took place on January 1, 1990. In Italy, they have a law separating banking and commerce, however, since 1990, their credit institutions have been able to buy stock in insurance companies which in turn can own banks. In Canada, the government revised its 1992 financial laws to allow financial institutions to buy insurance and investment firms. (ibid)

International Organization of Security Commissions- IOSCO

This international group of security commissioners has been meeting in obscurity since 1975. The only place a person will hear of IOSCO is in global economic power circles and in industry publications such as the "World Securities Law Report." In describing itself, IOSCO writes it members are the "Securities and futures regulators, responsible to ensure in their own jurisdictions high standards of transparency, integrity and investor protection, need to continuously adapt their regulatory framework and procedures to this changing environment. The IOSOC is at the heart of this global cooperative effort. IOSCO is today the most relevant technical cooperative forum for securities and future regulators and self-regulatory organizations worldwide." (1995 IOSCO Annual Report, p.2) It works very, very closely with a number of BIS related groups. Its Technical Committee deals with (1) Standardizing Accounting Methods on a global level, (2) the Regulation of Secondary (stock) markets and derivatives, (3) Regulation of Market Intermediaries such as the Tripartite Group and the Enforcement and Exchange of Information between all its 187 members.

In an interview this writer had with the Assistant Secretary- General of IOSCO, he called his organization, "The UN of Securities Regulators." Arthur Levitt, the SEC Commissioner calls IOSCO, "The single organization that brings securities regulators from around the world." He further states that, "There has never been a greater need for us to work together. We regulate one of the most innovative industries on the face of the earth, whose main commodity-- capital--has little regard for national borders. We must expand our cooperation to cover regulatory issues beyond

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enforcement." The activities of IOSCO basically make it a "global Security and Exchange Commission," i.e. a global regulatory body which is bringing together national laws to conform to an international jurisdiction over the whole global marketplace.

General Agreement on Trade and Tariffs

At the United Nations Bretton Woods Monetary Conference back in 1944, the three-pronged economic framework for a fully integrated world was established. The U.S. Senate confirmed two of the three: the World Bank and International Monetary Fund. The U.S. did not pass the International Trade Commission, the precursor to the World Trade Organization. In its place, 23 countries ratified the General Agreement on Trade and Tariffs. Between 1948 and December, 1994 when GATT/WTO was finally passed by a lameduck Congress, fourteen GATT "Rounds" had been held, including the Dillion, Kennedy, Tokyo, and Uruguay Rounds. At each of these meetings further concessions were made in the negotiations of trade tariffs. Major categories for trade include telecommunications, maritime transport services, Intellectual Property Rights (TRIPS), Financial Services, the environment, competition policies, government procurement, technology, labour, agricultural reform, and textiles. The GATT is more than 26,000 pages long and no single article could ever explain or comprehend what this global agreement really does or means. This massive Agreement whose intent it is to break down ALL of the TRADING BARRIERS IN THE WORLD, will change everything. Given the above negotiations and the length of the GATT document, it should be noted that trade is not "free." GATT/WTO represents a complete dismantling of commerce and manufacturing as presently known. (WTO Press Release on Financial Services, December 9-13, 1996)

The WTO Financial Services Agreement

The financial services sector is one of the three service sectors whose market-opening negotiations were not completed during the Uruguay Rounds where basic principles for implementing liberalization of services were agreed to. Currently only 29 countries are participating in a second agreement made after the Uruguay Rounds. There are three more meeting set for 1997 to complete the tearing down of the borders in the financial services sector.

According to the Uruguay Round, the following activities are considered financial services: "insurance and related services--life and non-life, reinsurance, insurance intermediation such as broking and agency services, banking and other services--acceptance of deposits, lending of all kinds--consumer mortgage, commercial, financial leasing, all payments and money transmissions services, trading in money market instruments, foreign exchange, derivatives, exchange rate and interest rates instruments such as swaps and forward rate agreements, securities and other negotiable instruments, gold, participation in new issues of securities, money broking, asset management such as portfolio management or pension fund management, settlement and clearing services for financial assets..." (Ibid)

"Because the commitments vary so widely [among countries], it is difficult to summarize in precise terms what they mean. There are common trends. In many countries, more foreign banks, securities firms and insurance companies are being allowed to operate...with various conditions...attached. More asset management and other financial services can be provided by wholly or partly foreign owned companies..." (ibid) (emphasis added)

The World Bank/International Monetary Fund

Both of these institutions, comprise the key economic cornerstones for the global infrastructure, were birthed at the UN Bretton Woods Conference in 1944. The World Bank has evolved from its original mandate of making developmental loans to one of epic magnitude in scope. The International Bank for Reconstruction and Development- IBRD (the first piece of the World Bank empire) and the International Development Association-IDA make loans to developed and developing countries of the world. The International Finance Corporation-IFC, established in 1956, promotes the development of capital markets or stock exchanges, brings new stock to market through the privatization process and creates new financial instruments. The "country" closed end mutual funds were one of their ideas. Country funds became very popular as a way to invest in specific countries. IFC is a major mover and shaker in the globalization process as it works with 150 country funds and has leveraged $19 billion or 2000 companies in 125 countries. Then there is MIGA - the Multilateral Investment Guarantee Agency that provides guarantees to foreign investors against losses caused by non-commercial risks. In 1996, they issued 68 contracts covering $2.3 billion. ( Note: Non-commercial could include third world governments and/or the kitchen-sink. A form of transfer of wealth with regard to those who end up "holding the bag." - JV interpretation.)

It is important to point out some of the World Bank's major programs, such as their Environmentally Sustainable Development Division. Established in 1993, the World Bank mandate states "development could be achieved and sustained only through the integration of economic, social, technical and ecological dimensions. The Environmentally Sustainable Development division is concerned with water management, agriculture and forestry, urban and industrial management, social issues, biodiversity and the Global Environment Facility. The World Bank, as a whole, is involved in much more and basically wants to be your bank!

World Bank President James A. Wolfensohn, in his annual address in October said, "...We have expanded our links with the UN and its agencies, the World Trade Organization and the European Union...The Bank is working with governments to help them improve the policies and legal, tax and judicial systems that are crucial for encouraging investment."

The International Monetary Fund is currently being restructured by the Group of Seven, the World Bank and the United Nations to fulfill the functions of a "world central bank." In an interview at the annual IMF/World Bank meeting in October with a media representative, he referred to the IMF as just that. As greater economic powers are conferred

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on the IMF, it has basically orchestrated the transfer of growth from the north to the south (terms used to describe developed countries and developing countries) through their economic policies. For example, the US has a growth rate of 2% while China has a growth rate of 6%.

The United Nations

Much could be said about the United Nations. They hold over 5,000 conferences a year in order to change the global infrastructure in all areas of life so that they can fulfill their Charter which calls for "harmonization" between all countries of the world. In essence, the UN and its fifteen plus agencies and fourteen plus commissions act as a "global octopus," bringing all of the different commercial, legal, economic, trade and social aspects of life under their sphere of influence. The World Bank/IMF, World Trade Organization, World Postal Union, etc. all come under the auspices of the UN.

The Glass-Steagall Act

As a result of the 1929 banking crash, Congress instituted two laws, the McFadden Act of 1927 which prevented interstate banking and the Glass-Steagall Act in 1933. With regard to the McFadden Act, it was torn down several years ago with the ability of banks to cross state lines, the merger activity in the banking industry is a direct result of this reversal of policy.

Glass-Steagall adopted five key changes to the Federal Reserve Act: (1) It created the FDIC to protect bank depositors through insurance, (2) It restricts investment banking activities to acting only for its own account, (3) It prohibits the affiliation of any bank to engage principally in investment banking activities, (4) It makes it illegal for any depository institution to engage in investment banking and receive deposits at the same time and (5) It prohibits interlocking directorates and certain other links between member banks and firms or individuals primarily engaged in investment banking. In short, it separated the functions of a bank from that of an investment firm which underwrote stocks and bonds. (The Federal Reserve)

Currently the only way an American financial institution can own a foreign subsidiary is through a foreign subsidiary, as in the case of Merrill-Lynch buying a British brokerage firm, Smith New Court. The repeal of Glass-Steagall would allow foreign banks and brokerage firms to own American banks and brokerage firms directly. It is conceivable that the largest bank in American may one day be Mitsubishi Bank!

The statement by Congressman Jim Leach testifies to the

concerted drive by a number of globalists in Congress to break the Glass-Steagall Act. This action would in essence bring U.S. banking institutions into conformity with other banks around the world. The BIS defines mega-banks -- banks who can offer insurance and underwrite and sell securities and other services, as "financial conglomerates." In essence, breaking Glass-Steagall would standardize our banking system with the global banking system that is emerging as a result of the BIS orchestrated changes in the national laws of all countries. For example, all banks could sell insurance, own stock brokerage firms and syndicate stocks and bonds. Lastly, it would open the door to the "Cashless Society" or "E money" as many countries outside of the U.S. are further along in the conversion of paper money to E- money than the U.S. is. The American banking system would be in a position to facilitate this global change over. Without the repeal of Glass-Steagall, this cannot happen. The FDIC is spearheading the E-money conversion.

In answer to a question raised by this writer, Mr. Leach replied that the repeal "would make banks more meaningful...and they would not be crippled by a regulatory environment in terms of their powers." He also called for a National Insurance Commission, as other countries around the world have. Currently each state, as protection against too much central power, have their own State Insurance Commission.

This may be part of the reason for the Federal Reserve approving the purchase of Mitsubishi Bank's plan to buy the U.S. units of the Bank of Tokyo which will create the world's largest bank with $826 billion in assets. (Washington Times, 3/9/96, A11)

Lastly, there is an old rule which says if you want to know who controls what, "follow the money." According to the BIS, the world's banking assets are valued at more than $20T, insurance premiums at $2T, stock market capitalization at over $10T and the market value of listed bonds at $10T.

The 1996 Stock Market

The Dow Jones opened up at 5117 and to the thinking of most experts, after 1995's gain of more than 33%, it could not happen again. The only way 1996 could top 1995 is through globalization and that is the only reason for its continued strength. As part of the globalization process, there was an unprecedented $502B in mergers and acquisitions.

The Dow provides a wonderful example of the effects of globalization on the market. It took the Dow ten years to close above 1000 on a permanent basis which it did in 1982, five years to break 2000 (1987) and four years to cross 3000 (4/17/91). By 1995, four years later, the Dow crossed both 4000 (2/23/95) and 5000 (10/21/95). In 1996, 6000 arrived on 10/15/96. Today the Dow stands at another incredible high of 6550 possibly on its way to 7000 or 8000 or higher!

This year has been interesting in another way. Just as a test pilot would test a plane for its limits, the market appears to have been tested as well. It has moved up and down like a roller coaster--up anywhere from five points to as much as 127 points in one day (12/20/96), with the lows moving in the treacherous zone, falling anywhere from 9 to 53 to 76 to 115 and 161 points on one day. Not to mention deadman's curve on July 17 when it broke all barriers and plunged 212 points before climbing back 219 while trading 877 million shares. Whew!

Between November and December 12, 1996 the Dow

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gained 541 points or 9% in just one month. Timothy R. Stives, a 20 year veteran who manages $760M in growth stocks, put it correctly when he said, "We're on uncharted ground." (Business Week, 12/9/96) All this without even a ten percent correction

The value of U.S. stocks has grown $4.5 trillion to $7.3 trillion, as investors have pumped about $660 billion of new cash into stock mutual funds-- three times the total assets in stocks funds in October, 1990. The real reason for this growth can be summed up in one word--globalization.

Adding to the picture is the fact that the Federal Reserve has not raised interest rates this year. Interestingly enough, there has been tremendous press about the actions or inactions of the Federal Reserve and the Dow. Perhaps, this is a way of adding to the Fed's already incredible corporate powers.

Out of all of the above stock market moves, the 127 point rise on December 20 merits very close consideration for it basically signals the next wave of mergers and acquisitions. Only once did the radio announce that the reason for the rise was due to financial stocks. The next morning, however, The Washington Times attributed the rise to "irrational exuberance, or perhaps, Christmas spirit." Considering that this 127 point rise was the second largest gain ever on the Dow, one has to wonder at such an explanation.

Then on December 21, there was an obscure article two sentences long which was the tenth item in the business column of The Washington Times which read, "Fed Reduces Banking Barriers - The Federal Reserve took another step yesterday toward eliminating the barriers between banking and other financial services industries. The Fed Board of Governors voted unanimously to increase the percentage of revenues bank subsidiaries may earn from underwriting and dealing in securities to 25% from 10%." There it was. The action which could lead to the complete dismantling of the Glass-Steagall Act. If a person were not watching carefully, he would not see it. This was the real reason for the 127 point rise in the Dow, it was not "irrational exuberance."

In this regard, there was a pertinent article in Business Week, November 4, p.184, entitled, "Crashing Through Glass- Steagall." It said, "With Congress safely out of town, federal regulators are poised to enact new rules that will smash gaping holes in Glass-Steagall--separating commercial banks from investment banks. The Fed is expected to boost the share of revenue that banks' securities affiliates can derive from underwriting corporate stocks and bonds from 10% to 25%. In addition the Comptroller of the Currency plans to issue new rules by year end to give banks broader entree into a range of financial services through new operating subsidiaries. Those changes could enable the biggest commercial banks to acquire large Wall Street Investment firms. In addition, he might also give banks more freedom to sell life and auto insurance and create travel and real estate agencies. The Comptroller of the Currency's gambit is an end run around lawmakers authority. Four U.S. Supreme Court verdicts have upheld his authority to grant new bank powers. Wall street analysts predict that the one- two combo from the Fed and Comptroller could set the stage for a spate of merges with U.S. and foreign banks bidding for smaller brokers such as Lehman Brothers and Oppenheimer...."

When Congressman Leach said "the reform of the Glass- Steagall Act is the most exciting comprehensive banking bill of the century and more consequential," do you now see the vast global implications of his seemingly innocent statement? Behind the Fed's move is the Bank for International Settlements in Basle, the Triparte --comprised of the Bank's Committee on Banking, IOSCO and the International Insurance Association, the Group of Ten, the World Bank and IMF who are orchestrating the financial economies of the countries of the world and the World Trade Organization and the Financial Services Agreement. All of these groups and organizations are pushing to harmonize banking laws in all the countries of the world which will result in mergers and acquisitions on a global basis in banking, insurance and securities

To play the game you must know the players. Now act. The investment recommendations for 1997 are the same as 1996---financial stocks, technology, telecommunications and natural resources. The merger and acquisition activity will continue due to the globalization process which is Darwinian in philosophy. Be there!

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* They are: The Secrets of the Federal Reserve by Eustace Mullins, published by Bankers Research Institute, P. O. Box 1105, Staunton, VA 24401, The Federal Reserve-An International Mystery by Thibaut deSaint Phalle, Praeger Press, 1984, and Tragedy and Hope by Dr. Carroll Quigley

This book is available today because Dr. Quigley gave the rights to the American Opinion Press after it was banned by MacMillian. To order this 1000 page masterpiece, Call 1- 408-475-6651.