VEON FINANCIAL SERVICES, INC.

P. O. BOX 77 MIDDLETOWN, MD 21769 (P) 301/432-7511 (F) 301/432-7514 Vol. Issue 3

FINANCES ON THE EVE OF THE 21^ST CENTURY:
THE REPEAL OF THE GLASS-STEAGALL, THE DOW, AND Y2K
REPEAL OF THE GLASS-STEAGALL

Introduction

On the evening of November 9, 1989, the Berlin wall came down, checkpoint Charlie vanished and communism died (so we are told), thus making the world one politically. Since then, there have been new freedoms for former communist countries as capitalism has become king!

Almost ten years to the date of the fall of the Berlin Wall, another wall has fallen--this one was political as well. On October 22, the "fire wall" separating the activities of a commercial bank from that of an investment bank fell. Called the Glass-Steagall Act after its originators, this 66-year-old law now paves the way for global financial freedom for banks, insurance companies, and brokerage firms to become one. This new entity is known overseas as a "financial conglomerate."

Why is this bill so historic, to use the words of Congressman Jim Leach? Because, for the first time in history, it paves the way for financial conglomerates around the world to now merge with the new American financial conglomerates--without the separation of functions and national borders. It will create a power which heretofore has been bridled and one in which the assets of these new entities will exceed that of many small and medium sized countries!! Marry the financial conglomerates with multinational and transnational corporations and you have the new titans of the world!!!!

How will it benefit you and I? Only time will tell. Initially, we may experience a stock market boom equal to any of the major booms experienced thus far in the 1990's as a result of the new competition coming from insurance agents who could not sell mutual funds before, as well as more banks offering "financial planning services" to their depositors. However, in order to understand the pros and cons of the fall of the walls of Glass-Steagall, let us first review.

Review

The first Group of Seven meeting which I covered was in Lyon France in June 1996. There I became acquainted with a number of goals which the G-7 had and, as a result, heard the term "financial conglomerate" for the first time. I understood at that time that the supervision of these new behemoths would be the Bank for International Settlements (BIS) in Basel Switzerland. Since the BIS is the central bank's bank, I realized that any transfer of supervision from the national supervisors--the U.S. Comptroller of the Treasury--to the BIS was a transfer of economic sovereignty. It was as a result of this understanding that I started to study, trace, track, and write about the concerted effort to repeal the Glass-Steagall Act. The following is written for the sake of posterity: At some time in the future when you cannot understand why your local bank is now owned by the Japanese, British, Dutch, French, or Chinese, you will know it all started with the repeal of the Glass-Steagall Act in 1999.

In the March-June 1997 economic newsletter entitled "Part 2: Economic Globalization, Glass- Steagall and the Dow", I wrote:

"Although many people have termed the world a "global village", most Americans operate on the local level not realizing that the changes affecting us originate much higher than our daily thought processes. The global level has been evolving politically since the 1920's beginning with the League of Nations, now the United Nations, and economically since the birth of the Bank for International Settlements in 1929. Other global players include: the ten most powerful central banks in the world (the Group of Seven plus Holland, Sweden, Luxembourg, Switzerland, and Belgium), the International Monetary Fund (IMF), the Organization International Association of Insurance Supervisors (IAIS), the Group of Ten (G10), and Group of Seven (G-7), the World Trade Organization (WTO), and multinational organizations.

In order to integrate, i.e. harmonize all of the countries of the world into one, national laws must be changed--financial, economic, commercial, industrial, and structural. The entity needed to handle the demands of the 21^st Century are financial conglomerates or banks who can offer and sell stocks, bonds, mutual funds, and insurance. The only barrier is the Glass-Steagall Act of the United States which was passed as a result of the 1929 stock market crash to separate the functions of commercial banking from investment banking, i.e. banks who offer stocks, bonds and mutual funds. Once this law is erased, banks will then be ale to move the world past financial conglomerates to an electronic monetary system which is a 21^st century goal.

Concurrent with the rise of financial conglomerates is the consolidation of power within each country by its central banks. As central banks' powers are increased, the influence and hold which they have over the finances of a country are strengthened. This [new] global economic landscape is further enhanced by an emerging international accounting system and international tax system."

History of Mergers and Acquisitions Leading to Mega-Banks

In 1991 the Bush Administration began "bank reform" by phasing out "interstate banking" in order to allow banking to merge across any state boundary and thus increase their capital base. This created a wave of mergers among smaller banks so they could take advantage of the opportunities created for the large banks. Mergers that year include: Bank of America bought Security Pacific for $84.7B, Chemical Bank bought Manufacturers Hanover Trust for $361.3B, NCNB Corp. bought C&S/Sovern Corp. for $49.22B, Bank of New York bought Irving Bank Corp. for $24.2B, Sovran Financial Corp. bought Citizens & Southern Corp. for $23.B, and Chemical-New York Corp., bought Texas Commerce Bankshares for $19.2B (Washington Times-WT, 8/13/91, C1). It is evident that what began in 1991 was only the beginning of the repeal of Glass- Steagall as all of these mergers set precedence for the final repeal.

The need to repeal Glass-Steagall was exacerbated by the goals of the Group of Eight, which concurs with those of the World Trade Organization Financial Services Agreement to open financial borders worldwide.

Over the last five years many stones were thrown to break down the 1933 law which included the following:

1. In December 1996 the Fed increased the amount of income a bank can earn from

its financial subsidiary from 10% to 25%.

1. Mergers between banks and brokerage firms included: In January 1997, Salomon Brothers (an investment bank) merged with Fidelity Investments (mutual funds) which has 1.5 million customers and is the largest mutual fund company in the U.S. Several days later, Holland's ABN Amro Bank agreed to buy Standard Federal Bankcorp in Troy Michigan, making this ABN's largest acquisition. Then Morgan Stanley and Dean Witter, Discover & Company merged into the world's biggest securities company. In April 1997, Bankers Trust purchased Alex Brown, Inc. Later that year Travelers Group, which owned Smith Barney (brokerage), purchased Salomon Brothers, creating the third-largest securities firm in the U.S.
2. Mergers between banks and insurance companies: In May 1997, First Union Corp., the nation's sixth-largest bank, agreed to partner with Hartford Insurance Company, one of the oldest in the U.S.
3. Mergers which created "financial conglomerates": In 1998 Citibank and Travelers agreed to merge, thus fulfilling the definition of a financial conglomerate.

All of the above was done without the repeal of the Act! Those in key positions, such as Congressman Jim Leach for whom the new 400 page banking bill is partially named (Gramm-Leach); then-Secretary of the Treasury Robert Rubin, who is now the third director of the nation's only financial conglomerate, Citigroup; Comptroller of the Currency Eugene A. Ludwig; and Alan Greenspan all voiced strong support.

It should also be mentioned that much money was spent on lobbyists to tell Congress what we the people wanted and how we would benefit from banking modernization! Between January and October of this year, banking, insurance, and brokerage firms spent more than $30 million on political contributions to both parties--up 36% over the same period in 1997, according to the Center for Responsive Politics (USA Today-USA, 11/5/99, 12B). This does not include the amount spent over the years to lobby for the repeal of this bill.

There was much written about why Glass-Steagall had to come down. Most of it was "reinvented truth"- -in other words they glazed over the real reason for why it was needed in the first place. Congress, as a result of the 1929 stock market crash, commissioned a study to determine why it happened. They concluded that the activities of banks, which at that time could both bring stocks and bonds to market as well as sell them to depositors (on margin), was to blame. Congress recommended that the activities of a commercial bank (your local bank) be separated from investment banks (example: Merrill Lynch which brings stocks and bonds to market and then has a sales force, known as brokers, to sell the investments). Hence the Glass-Steagall was passed for our protection and benefit.

However, in the late 20^th century, this law, while still appropriate, hampers American banks from being like their foreign counterparts which are financial conglomerates. In order to make the world one with respect to banking, insurance and brokerage activities, our laws had to be changed. Now that we are one, these are some of the changes which will take place:

Integration

1. Further integration of money worldwide-- making the world truly one.
2. A flurry of additional mergers and acquisitions--until there are only ten or fifteen banks in the world versus in a particular country.

Regulation

1. As a result of the number of new entities created, in addition to the financial conglomerates, the need to supervise each of these will be guided by the activity.
2. The regulatory oversight of the financial conglomerates will be shifted from that of the U.S. government to an international organization, the Bank for International Settlements in Basel Switzerland.

New Investment Activity

1. As a result of the new business activities which will be generated as a result of this bill, I can see some new stock market highs and excited insurance agents rushing out to invest monies which heretofore they could not.

Stock Market Dependence

1. There are some concerns about the growing percentage of households who own stocks and repercussions which might arise if and when the market drops.

Integration

In order to make the world one, we have to integrate our monies. This is done a number of ways: (a) trade -- you trade with me, I trade with you; and (b) investment -- mutual fund, trust, pension, profit- sharing, IRA's, 403b investments in foreign and international mutual funds. In addition, we invest in their stocks, which are listed on American stock exchanges, through an instrument called "American Depository Receipts".

Americans will see more foreign banks invest in the United States. H. Rodgin Cohen said, "virtually every major foreign financial institution wants to be in the U.S." (Financial Times-FT, 10/25/99, 4). Some European banks, such as ABN Amro and Deutsche Bank, are already heavily involved in the U.S. I predict that you will eventually see only a dozen or so large global banks on the street corners of the world.

Regulation

In order to pass the Financial Services Modernization Act, a number of obstacles had to be overcome. The ones we will deal with in this newsletter center on regulation of banks, insurance companies, brokerage firms and financial conglomerates. According to the Washington Post, the Federal Reserve and Treasury officials battled for years over which agency will oversee financial conglomerates and banks (Washington Post-WP, 10/15/99, El).

In a keynote speech to the American Banking Association on October 10, 1999, Federal Reserve Chairman Alan Greenspan addressed the "evolution of bank supervision." He sketched a framework which is now being developed, based on work being done in the United States, and on a consultative document released by the Bank for International Settlements Basle Committee on Banking Supervision in June. Greenspan said that since no two banks are the same, they must be managed accordingly. He said that supervisory policy and procedures being contemplated will build on the increasingly sophisticated management and control systems that are rapidly becoming part of the banks' best practice risk management mechanisms. The Fed has already established dedicated teams of examiners for large complex banking organizations (LCBO's).

--The Federal Reserve and Treasury will split oversight over banks entering new financial activities.

--The sale of stocks and bonds by banks would be regulated by the Securities and Exchange Commission.

--The Comptroller of the Currency would regulate checking accounts; lending and other traditional bank activities would be at the national bank level.

--Insurance underwriting and real estate development will have to be kept in affiliates of their holding companies which fall under the Federal Reserve

Companies larger than LCBO's would be regulated on the global level by a new infrastructure.

--The Treasury and Fed would share oversight of newly-allowed bank affiliates, known as merchant banks, that could take limited ownership positions in non-bank companies.

What is at the heart of the new banking supervision rules are new guidelines which have been developed over a number of years by the central banks' bank, the Bank for International Settlements. This transnational entity is owned and comprised of large international banks which own it. The Federal Reserve, a private corporation, is one of the key members of this international organization. In other words, the direct supervision of our banking system is slowly shifting from that of national banking regulation to one of supranational regulation.

Alan Greenspan's October 10 speech gave us an indication of the direction. He said, "Within the U.S., consideration is being given to a standardized capital treatment involving a quite simple regulatory capital ratio that might become applicable to the vast majority of institutions that are not internationally active."

New Investment Activities

On the day the Senate passed the Financial Services Act, the stock market rose 173 points. Citigroup, the world's largest financial services company, earned in the third quarter $2.45B, up 250% on the same period last year as a result of cross-selling Travelers' products through the old Citibank network and vice versa. U.S. banks' market capitalization--the value of shares of stock multiplied by the number of shares outstanding--is $1 trillion compared with $175B for securities firms and $95 billion for life insurance companies (WP, 10/3/99, H1).

I personally feel that with a large influx of new investment brokers that the stock market will gain billions of new dollars which will bring the stock market to newer and more historic highs. All this in light of Y2K!

Stock Market Dependence

Several weeks ago, Alan Greenspan gave one of his speeches which caused the stock market to drop 5.9%. But what Greenspan was alluding to was that 35% of American households now own stock versus 25% in the last twelve years. Therefore if the stock market drops, how rich would they feel? There are other ties with the dollar, the value of the stock market and the value of multinational and transnational corporations.

There is no doubt that we have entered a new era and a new time at great expense--our national economic sovereignty.

THE DOW

In 1999, the market opened under 10,000, passed through it in March, dropping back to pass through again in April, charging past 11,000 in May to a high of 11,400, only to drop back to 10,200 and recently rising to 10,700. The drops have been interesting and unexpected and the increases as well. One drop was 5.9%, the largest since 1987.

The reasons for the market's rise include a hot Internet market which has somewhat cooled, a strong technology sector, a rebounding energy sector, a flash-pan gold market which has cooled, and communications. The S&P reached historic highs and the small cap stocks have come alive. All of this in the midst of more mergers and acquisitions which threaten to create a few behemoths in every industry, while wiping out the smaller guys.

Coming out of December 1998 Exxon and Mobil agreed to merge their companies, valued at $75.4B, into one. Touted as the biggest merger in U.S. history, this was a reunion of two of John D. Rockefeller's companies which were broken up in 1911 as a result of anti-monopoly concerns. The Exxon merger exceeded that of British Petroleum's buy out of Amoco, making it the world's biggest company.

In March, BP Amoco purchased Arco for $25B. The CEO of that company, Sir John Browne, is a chief adviser to Prince Charles and his Prince of Wales Business Leaders Forum. In May, Case Company merged with UK-based New Holland to create a global farm and construction equipment giant. I used to work for Case when it was J. I. Case, when I lived in my home town of Racine Wisconsin (long ago).

Then in April, both AT&T and British Telecom agreed to buy a 30% stake in Japan Telecom for $1.85B. In mid-1998, BT and AT&T unveiled a $10B global joint venture which still has to be named and which will provide global voice and data communications services to large, multinational corporations. In June, AlliedSignal and Honeywell merged to create an aerospace parts-and-electronic conglomerate. In July, Dutch food-maker Royal Munico purchased General Nutrition for $1.75B. That same month Boise Cascade, one of the largest U.S. wood products groups purchased Canada's LeGroupe Forex in what is one of the latest developments in the growing trend of cross-border mergers in the North American forestry industry.

In July, CSX Corp. agreed to sell its Sea-Land international ocean shipping business to A.P. Moller-Maersk Lines of Copenhagen to create the world's largest container-shipping company.

Lastly, as a result of the pending repeal of Glass- Steagall, there has been a flurry of bank mergers: Bank of America purchased NationsBank--making it the first cross-country--coast to coast bank. Then AmSouth purchased First America in June which created the largest regional bank in the south.

As you can see, the integration of monies, men, jobs, business, and wealth are weaving a new fabric in the color of "one world" -- all Glass Steagall did was put the cherry on the hot-fudge sundae dessert!

Y2K

Two years ago Ed Yardeni, chief economist from Deutsche Bank, made public a computer problem which would create programming problems in 2000. Since then speculation has grown over how this computer slip-up will affect our standard of living.

There have been speculations on many sides--some say no problems will be created while others say it will create serious problems. I have debated this situation very seriously. As a result of what I initially thought, we moved to a less congested area. While I have absolutely no regrets over moving, I think it is up to everyone to determine how they should be positioned for Y2K.

With regard to the stock market, I have analyzed it very carefully. I don't feel, at this time, that there is going to be a serious stock market crash. I believe that as we go into the third millennium, leaving the 20^th century, that the higher powers that be--those that control the stock market--want to go out with a bang. When you combine this with new monies going into the market as a result of the repeal of Glass-Steagall and a build up in cash on the sidelines, you have the makings of a powerful movement. Mind you--this is how I feel right now as I write this newsletter. I leave you with words higher and more meaningful than mine:

"Be still and know that I am God: I will be exalted among the heathen, I will be exalted in the earth." Ps. 46:10.