Generation Connect

The story that the media has not been telling about the great recession is the effect of massive population shifts on the economy. A large reason that the unemployment rate has been increasing is that the number of people seeking employment is increasing without more jobs being created to accommodate all the new workers. The generation born in the 1980s has been steadily entering the workforce, only to find a barren landscape. Who is this generation, and what lies in their future?

The Generations
The Traditionalist generation (also called the Greatest Generation) was made up of those who were alive and fought in World War II. This generation was characterized by the nuclear family living a wholesome life in the suburbs. Traditionalists worked one job for their entire careers, lived frugally, and saved wisely. They received pensions and social security, and paid off their mortgages. They retired nicely and lived long lives, many surviving into their 80s and 90s to this day.

When World War II ended, the Traditionalists had babies en masse, producing what would be called the Baby Boom generation. The Baby Boom generation was defined by the sexual revolution of the 1960s, the Vietnam War, and the boom periods of the 80s, 90s and 2000s. The “Baby Boomers” created much of the new technologies in the world today, including the personal computer.

The Baby Boomers were also defined by a shift in attitudes towards work and jobs, with the average worker working 8 different jobs during his or her career. The Baby Boomers lived day to day, spending when times were good and going broke when times were bad. Many won’t receive pensions because they didn’t work for one company for long enough. Baby Boomers didn’t pay down their Mortgages, and used their home equity to finance their lives and their children’s lives. The Great Recession has wiped out much of the retirement savings of the Baby Boomers.  Many aren’t able to retire, and won’t be able to in the foreseeable future. It is likely that many baby boomers will work well into their 60s and 70s.

Generation X is the term used to describe the generation born after the Baby Boom, in the late 60s and 70s. This middle generation faced difficulty entering a workforce already saturated with baby boomers. Generation X was defined by Cassette Tapes, VCRs, and the Internet boom of the late 90s. Generation X had trouble entering the workforce in the 80s and early 90s, but eventually settled in.

The Helicopter Generation?
The next major generation consisted of the children of the baby boomers, born in the late 70s, 80s and early 90s. This massive generation grew up with video games, the Internet, and a globalized world.

The children of the Baby Boomers have gone by many names. My least favorite are “The Echo Boom”, “The Helicopter Generation”, and “Generation Y”. The term echo boom was the term given to this generation by David K. Foot, a Baby Boomer, in Boom, Bust and Echo, which was a bestseller in 1997. The book discusses the major generations in recent history.  Echo Boom defines the generation by the generation of its parents, seeing the ripple created by baby boomers as the defining element of this generation. The term Helicopter Generation comes from the fact that many baby boomers had only one or two children, which led them to be much more involved in the lives of their children, hovering over them like helicopters. The term Generation Y derives from the fact that this is the generation after Generation X (how creative). All of these names define this generation by previous generations, and not by the characteristics of the generation itself.

The names “Millennial Generation” and “9/11 Generation” are slightly better, defining the generation by watershed events that occurred in the lives of individuals in the generation. I don’t think that either of these events truly define or explain the generation though. They are just events that happened to occur during the maturation of people in the generation.

My favorite names currently used are the “Internet Generation”, the “Dot Com Generation” or the “Net Generation”. These terms define the generation by the internet, the major technological advancement that has affected how this generation lives, works and connects. My only qualm with these terms is that it is not just the Internet itself that has affected how this generation lives. Other technologies that are ancillary to the Internet have also had a great impact. The internet may have made Facebook, instant messaging and texting possible, but these items transcend the internet to create a new way of life that defines the generation.

Generation Connect
An alternative that I like is “Generation Connect” or “Gen Con” for short (I know it sounds like some evil corporation out of a Terminator movie). This term encompasses what gives this generation its identity; the interconnectivity of the individuals who make up the generation. Whether connecting through the Internet, Facebook or text messaging, or connecting at bars or social gatherings in the real world, this generation is more interconnected than any previous generation.

Technologies have allowed this generation to maintain contacts for longer periods of time and create more connections. In previous generations, someone with a Rolodex filled with a hundred contacts would be considered a very well connected person. Today, the most connected people have several thousand friends on Facebook that they can connect with instantaneously.

This generation is also connected on a global scale, with borders and nationalities being replaced by a single world culture. It is not uncommon for individuals in this generation to have connections in several countries and cities throughout the world. People move and travel, but maintain connections over long distances.

The Plight of Gen Con
Generation Connect is currently facing a very difficult transition into the global economy. The Baby Boom generation is leaving the workforce at a much slower rate than they should, which means that existing jobs are not becoming available. The Great Recession has meant that no new jobs are being created, since companies are not expanding. Global competition has meant that certain jobs are unavailable in first world countries, such as work in manufacturing or telephone support.

Another major factor is that the productivity of workers has greatly increased due to new technology. In the past, an experienced attorney with a good book of business would require an associate to do his or her research, a secretary to type out briefs, and a runner to submit documents. Today, that same attorney will do his or her own research on-line, type briefs on his or her computer, and submit documents on-line in half the time. Modern technology has created a breed of superhuman workers who can do the work of several individuals.

Back to Basics
In order to survive, many members of Generation Connect are having to revert back to the basics of a primitive economy. Even with all of the new technologies of the 21st century, the economy still consists of buyers and sellers transferring money in exchange for goods and services. Those who are succeeding despite the state of the economy are those who can sell, effectively market, or create things for others to sell. Even those with intellectual jobs are increasingly being asked to bring in business for their companies.

The baby boomers will eventually retire, and jobs will start to open up. However, the transition will likely take several years, and every year new workers are entering the workforce. This generation will adapt like previous generations did. The Baby Boomers faced a similar crisis when they entered the workforce in the 70s, as did Gen X in the 80s.

Like Bill Gates and Steve Jobs proved themselves in the Baby Boom generation, Generation Connect will also have its individuals who achieve great success and change the generation. So far, Mark Zuckerberg has been the first to truly change the world, but more will follow.

Generation Connect is more educated, knowledgeable and connected than any previous generation. This generation will do great things as it takes the reins from the Baby Boom. New technologies will better our way of life and create new industries and opportunities. Only time will tell what lengths will be achieved, but the sky is the limit.

How The Recession Happened

1. The Olden Days
Dave needed a place to live, had a job with a steady income, a good history of paying back any money he borrowed, and a little bit of money saved up. Unfortunately, he didn’t have enough money to buy a piece of property outright. So, Dave went to his bank and said “let’s make a deal. You lend me the rest of the money to buy this property, and I’ll pay you back in monthly instalments over the next 20 years, plus some extra money every month (interest). If I don’t pay you back, you can take my property and sell it, pay yourself whatever I still owe you and I’ll get the rest” The bank agreed, knowing that Dave was a good guy and would pay them back. Plus, if he didn’t, they could just take the property, sell it, and get their money back. The bank got their money from cash they were holding on to, and borrowed the rest from a bigger bank or the country’s central bank. Dave got his house, and was happy. The bank was paid back over 20 years, and made a nice profit.

Alice had no money saved up, a crappy job, and didn’t pay back money she borrowed. Alice wanted her own place too. She went to the bank, but was denied because they didn’t think she would pay them back.

2. Mortgage Backed Securities
One day, a bunch of investment bankers had a great idea. Instead of getting the money to give Dave to buy his property from money already in the bank’s hands, they would get a bunch of Investors together to put money into a pot. Dave would get his loan from the pot of investor money. Then, whenever Dave made his payments, the bank would take a chunk for themselves, and the investors would get the rest. These investments would be called “mortgage backed securities” because the investments were backed by mortgages.

This worked great for a while, except eventually the investors started to get angry because they weren’t making enough money. The bank had a great idea. They would give a loan to Alice so she could buy her property too. Because they were worried that Alice wouldn’t pay them back, they charged her a lot of extra money in interest on top of what she owed. If Alice couldn’t pay the full amount, they would just add what she couldn’t pay to the total amount she owed. If she stopped paying, they would sell the house, and hopefully it would be worth more. The bank then bundled a whole bunch of loans to people like Alice and made the bundles into an investment that investors could invest in.

The bank took their investments to a rating agency, and asked the agency to tell them how risky the investments were. The rating agency looked at the bundles of mortgages to people like Dave, and said they were not risky, and gave them a good rating. They looked at the investments to people like Alice and said they were very, very risky, and gave them a bad rating.

The banks needed more money. They decided to take a bundle of loans to people like Dave, and a bundle of loans to people like Alice, and put them together into an even bigger bundle. They then went back to the rating agency, and asked how risky these loans were. The rating agency thought that this big bundle would really spread out the risk, since there were so many little bundles in it, and gave the bundles a good rating.

The rating companies screwed up, because the risky investments were still risky, they were just in a bigger bundle. Investors flocked to these big bundles, thinking they were not risky, when they really were, and bought them in large quantities.

3. Credit Default Swaps
The investors were worried though. What if they lost money on their bundles? Insurers like AIG came along and had a great idea. The investors would pay money to AIG. In return, if the investors lost any money on their bundles, AIG would pay them back whatever they lost. This was called a credit default swap. AIG was confident that people could only lose a little bit of money on these investments, since they were all backed by hard, tangible, real estate. Historically, real estate prices had never gone down very much, and had a steady increasing price trend.

Banks all over the world bought billions of dollars of these big bundles of mortgages. They invested all of their money in them, and were so happy that they were getting so rich. Plus, if they lost money, they had insurance.

4. The Beginning of the Collapse
Dave started making more money, and decided that he was going to buy a nicer house. He sold his house and went to buy a bigger one. He found a house he really liked, and put an offer on it. But, it turned out that Alice made an offer on the same house that was $100,000 higher, and got the house. The investors gave the bank money to give to Alice so that she could buy the house.

One month later, Alice didn’t make her payment on the house, and the bank took it back. They put it up for sale again at the amount that Alice had bought it for to get their money back. But, no one would pay that amount. Dave came back in with his offer that was $100,000 lower. The bank did not get any other offers and had to give Dave the house.

Now, the bank had lost $100,000 that it owed to investors!

All of the sudden, the prices of houses everywhere started going down. Alices all over America stopped paying, and banks lost billions of investor dollars. Real estate prices started tanking. In the past prices had never gone down much because they never got too high. They never got too high because loans were always made to low-risk people like Dave. But prices got too high because anyone, including people like Alice, could get a loan for however much they wanted.

The investors asked for their money back from the banks, but the banks didn’t have it. The investors then went to AIG and said “I want my insurance money”. AIG started paying out insurance money.

By the end of 2007, this caused the American economy to stop growing. It slowly started to decline, but the problem got worse. Eventually AIG had no more money to compensate investors and banks, and the banks were losing billions of dollars.

5. Lehman Brothers
One of these banks was Lehman Brothers. Lehman had been in business for a long time, and lots of people put their money in Lehman thinking it was safe. Lehman realized that they had no more money because they had too many investors trying to get money back. Lehman owed billions of dollars to these investors, but didn’t have it . Lehman asked the government for help, but the government at the time (Republican) did not want to interfere with the free market, and decided to let Lehman fend for itself. Lehman realized that it couldn’t pay money back, and went bankrupt.

6. The Catastrophe
Banks and investors all over the world were terrified. If investments in a secure bank like Lehman were unsafe, then any investment could be unsafe. Investors decided that they wanted all their money in cash, and really safe investments, because they didn’t want to lose it. So they all started selling all their shares and bundles of mortgages. But, no one wanted to buy their investments at a regular price, so they had to sell them at a really low price.

These lower prices caused the stock market to start crashing. People started selling stocks in regular companies that had nothing to do with investments because they were worried about their money. This sent share prices crashing. People who were just regular investors saw their share prices crashing, and decided to sell before prices got too low. This sent prices even lower.

This could have spiralled into another great depression. If more banks went bankrupt, and more investors lost more and more money, then all sorts of companies would go bankrupt. Banks owed hundreds of billions of dollars and had no way to get that money. It appeared that civilization as we know it could come to an end.

7. How the world was saved
The federal government saw this problem happening and realized that something had to be done. They knew that if the banks kept making loans like they did in the olden days they would surely make money again. So, Treasury Secretary Paulson decided to loan money to all the big banks and to AIG to compensate them for all the money they lost in the crisis. Paulson convinced president Bush, and a majority of congress that this was a good idea. The media called this a bailout, but it was really necessary to prevent another great depression.

With the billions of government dollars in hand, the banks could pay their investors back, and pay for all the losses that were occurring. Countries all over the world undertook similar bailout plans to keep their banks from going out of business.

8. Why there was still a recession
Unfortunately, the damage done was already severe. The banks had lost so much money that they didn’t want to make loans to companies and lose more money. Companies were losing money, and realized that the only way they could save money would be to cut costs. They started laying off workers and shutting down operations.

People who lost their jobs stopped spending money, and lived off of unemployment insurance. People who did have jobs got paranoid, especially after losing so much of their investments when the market crashed, and started putting away any last penny they could. This meant that stores and companies were selling less stuff and making less money. Stores had to shut down and lay off more workers.

9. The Aftermath
Although the recession is/was the worst since the great depression, the new Obama government and the Federal Reserve have fought to end it. The reserve made it very easy for banks to borrow money to lend out to good customers like Dave, charging really low rates of interest to banks, and making lots of money available.

The federal government’s stimulus package was designed to give the economy a boost at the other end, by creating actual jobs, extending unemployment benefits, and spending money on government programs.

In the end, this recession will be looked at as a wakeup call in the history of modern human civilization. The free market works brilliantly when it is monitored and regulated. But, it has the capacity to spiral out of control when people make the wrong decisions. If it was not for secretary Paulson and the TARP bailout, the free market would have self destructed, and would have taken years to correct itself.

This recession has been horrible, and has negatively affected the lives of millions. However, it would have been much worse if it were not for the bold and swift actions of the responsible bodies, guided by hundreds of years of economic thought. Hopefully, we can learn from these mistakes, and try to make sure something like this never happens again.