Every year, beginning around this time, trucks shunt around cities and visit every household in North America, and indeed most of the world, depositing these 6-7lb. volumes in stacks as an edifice to a pre-internet era.  Small businesses waste thousands of dollars each in perfecting their ads and emplacing them in a book that, nowadays, most of us will never demean ourselves to open.

There is substantial waste in this business:  whether it’s the energy expended in physically delivering these books to your doorstep every year, or whether it’s the paper (usually recycled — but that still uses energy) that could go to other uses it’s hard to ignore this big yellow hunk of tree when you trip over it while fumbling for your keys — twice a year in some cities as there’s now competition.

Us New Media types like to portray the Yellow Pages business as an anachronism — an embattled dinosaur searching for relevance in an era when we can Google ’til we puke to find the things we need.  Since this is 2009, a Facebook group has emerged, rather unambiguously called “The Yellow Pages Must Be Stopped“, to demand that the industry adopt an “Opt-In” practise.  I personally have not used a Yellow Pages for anything other than as a monitor stand since the last millennium — except when I was once desperate for a Pizza in a Long Island hotel room.

But unfortunately, the Yellow Pages business is not yet the death march that the Web 2.0 kids have hoped it would become.  … This may say a lot more about the new media of web, telephony, and mobile and their capabilities than it does about the old medium of schlepping giant books door-to-door for punters to thumb through.

For one thing, the Yellow Pages is still the number one tool used by consumers to find local business; the industry continues to forecast growth in the bellwether US marketplace from $10.3 billion in 1996 to a projected $18 billion by 2010 — yes, some of their revenue comes from online, but that number is pegged at between 25% and one-third.

Oh.  And people still (gasp!) turn to their Yellow Pages more frequently than anything else for finding products and services that are local to them.  According to research released a couple of months ago from Knowledge Networks, nearly half (48%) of consumers report print Yellow Pages as the resource they turn to most often for information on a business or service, and more than three-quarters (77%) use the print Yellow Pages overall.

As you would expect, age represents the greatest cutoff point.  The print books are for the olds:  54 percent of respondents over 35 years old said they prefer the Yellow Pages, compared to 29 percent of 18- to 34-year-olds.  I would also hazard a guess that the dividing line dissects social class and educational background as well.

So it might be a little bit early to plan the funeral for the dusty old Yellow Pages, though the companies that produce them are clearly being forced to diversify their product offerings and revenues.  They’re also adapting new standards, such as the shift to recycled paper and soy-based inks.

The Kelsey Group, a Research firm which services the Yellow Pages industry, does forecast turbulent waters ahead for the Print business.  This cut comes from their core base of advertisers, small businesses:

Print Yellow Pages is now in a challenging situation … overall, the accumulated data show small and medium-sized businesses’ spending on advertising has dropped, and the distribution of ad spending by bracket appears to have deteriorated. The assessments of the effectiveness and return on investment performance of print Yellow Pages are also weak. There is strong sentiment to reduce print Yellow Pages spending, and advertisers no longer view category position as a sufficient reason to maintain their current spending levels. In broad terms, SMBs that advertise in print Yellow Pages tend to be more consumer-oriented, established businesses. As a relatively expensive medium, Yellow Pages has lower uptake among younger, growing firms. These findings suggest directory publishers have work ahead of them in reestablishing their value proposition to small-business advertisers, particularly as these advertisers seek partners to help them find customers through nontraditional channels like the Internet, voice and mobile.

Google is not yet good at selling or positioning truly local advertising in scale.  In fact, there is not a single substantial advertising network pursuing this opportunity at the moment:  the problem isn’t in building the technologies that match advertising to your locale — the problem is in having a customer acquisition and sales engagement model that cost-effectively pulls in the mom & pop businesses that are the bread and butter for such an advertising network.

What the Yellow Pages is learning is that perception is their greatest enemy.  While surprising numbers of people still use their dead trees to find services and businesses, their advertisers are pulling out.  Other forms of advertising (even local newspapers) are more trackable and accountable than a static ad in the Yellow Pages that changes, at best, once per year and so there exists a greater perception of value in these.  Ironically, even though it’s still reaching customers, people are starting to realize that for most businesses the Yellow Pages isn’t cost-effective.

The real problem is the lack of a viable alternative.  This is actually where the Yellow Pages businesses stand to benefit.  They practically have a first-right-of-refusal in the small business advertising game already.  They have a scaled-out sales force and a revenue model that supports them — and, if it wasn’t already patently clear, a mandate to protect that structure — therefore they can cost-effectively engage with these small-scale advertisers.

What the Yellow Pages industry needs to do is sell more SKUs.  Today they sell advertising in the printed publication, as well as a range of services within their freestanding online directories.  In fact those Online Directories are #3 behind Search and the Printed Directory for how people find local businesses.  But that ain’t enough.  They need to become advertising networks.  They need to engage with the market of local bloggers, like Vancouver’s own Miss604, and give them advertising inventory that is relevant and can be targeted to their local audiences.

In other words the Yellow Pages businesses need to turn themselves inside-out and, instead of attempting to divert everyone into their silos and cathedrals, free their advertising to integrate with the wealth and breadth of the bazaar.  Locally-focused content sites, which today are starving because the best they can hope for is directly-retained advertising revenue or Google Adwords, could use the help — and in return they stand to generate substantially greater advertising exposure at far less cost than the online yellow pages businesses are attracting today.

It’s a simple shift but one which, I suspect, will have difficulty gaining traction within businesses that emerged from the Incumbent Local Exchange Carriers (Ma Bells) and which have inherited much of their managerial culture.

But there is a breakaway business opportunity here.  If they can make the shift then I believe the Yellow Pages can experience their third renaissance — and avoid the death by a thousand cuts that awaits them from environmentalists, web 2.0 kiddies, the expiration of their primary demographic, and online media empires alike.

But AOL will go down in history as a Ponzi scheme that makes 80s Junk Bonds look like chicken feed. Actually, I found a good backgrounder on Ponzi schemes here: http://www.mark-knutson.com/thescheme.html

-Ian.

——- http://www.fortune.com/fortune/investing/articles/0,15114,443065,00.html

AOL TIME WARNER Why AOL’s Accounting Problems Keep Popping Up The online giant created ad ‘revenues’ out of thin air. Now, it’s got scandals! FORTUNE Monday, April 14, 2003 By Carol J. Loomis

When there’s bad corporate news to be disclosed, the wise say, “Get it out and get it over with.” But that message hasn’t visibly permeated AOL Time Warner (parent of FORTUNE’s publisher) when it comes to accounting problems. Since last July, when the Washington Post did a biting two-part article about unsavory behavior at AOL, the company’s online division, the news hasn’t stopped. First the SEC moved in to investigate, and then came the Justice Department. Next, in August, AOL Time Warner’s CEO, Richard Parsons, certified the company’s financial statements–except for $49 million in AOL “revenues” that the company said it had just discovered maybe shouldn’t have been claimed as such. By October, when a “review” of that matter and others had been completed, the $49 million of nonrevenues had ballooned to $190 million (for unenumerated sins, most attributed to AOL), which the company said it would expunge by restating eight quarters of its 2000-02 financial statements. In the restatements, of course, profits vanished along with the revenues.

Then, just as March ended, came the news that the company and the SEC were arguing over yet an additional $400 million of revenues that might not deserve the name. In short, the SEC is suggesting that the $190 million confession didn’t exhaust the bad stuff. Its investigation continues, as does the Justice Department’s. So AOL Time Warner has acknowledged that further restatements might become necessary.

There’s a stark explanation for this river of news, and it’s kin to an old saying: “To a man with a hammer, everything looks like a nail.” At the AOL division, the locus of the accounting troubles, the hammer was an insatiable desire to show growth in revenues–very particularly, in what AOL called “advertising and commerce”–and to book the Ebitda (earnings before interest, taxes, depreciation, and amortization) that tagged along. So to AOL every business deal, including the unlikeliest of candidates, looked like a way to get these revenues. AOL won an arbitration award that it negotiated into an advertising contract. A raft of dot-coms that AOL invested in round-tripped their money–and at least once, in the case of Homestore.com, apparently triangulated it–into advertising. Investing in a dot-com called PurchasePro, AOL bought warrants for $9 million, then marked up the investment to $27 million and booked the difference as revenues.

And in the latest revelation, AOL’s purchase of Bertelsmann’s half-interest in AOL Europe magically produced that $400 million in ad revenues that the SEC and AOL Time Warner are fighting over. Magically and invisibly, we might add. Outsiders never knew there was $400 million of advertising tied to the Bertelsmann deal until AOL Time Warner made that fact clear at the end of March.

So, yes, in Virginia, at AOL, there was an obsession to get advertising in the door. Consequently nobody there appears to have paid much attention to whether the business deals at issue were really producing ad “revenues” by any acceptable definition–or perhaps the insiders didn’t think outsiders would ever learn the details. Well, the outside world has now caught on, and so have a lot of plaintiffs lawyers. Besides tussling with Washington, AOL Time Warner is today the defendant in at least 40 shareholder suits, many of which sprang from the accounting legerdemain.

It is important to recognize that at AOL Time Warner, whose revenues last year were $42 billion, neither $190 million nor $400 million is a major figure. But in certain ways these tainted amounts (leaving aside other problems the regulators may still unearth) counted for a lot. That’s partly true because incremental advertising revenues at AOL don’t tend to be heavily burdened with costs. So these revenues generally cascade into profits. Specifically, AOL Time Warner has said that the $190 million in bogus revenues ($22 million of which went to company divisions other than AOL) produced $97 million of Ebitda and $46 million in net income. That net translated–until the restatements whisked it away–into a neat profit-to-revenues margin of 24%. As for the $400 million, what it produced in Ebitda and net income can’t be said, because the company has not disclosed that information.

The other reason that these incremental revenues mattered is that they helped AOL paint a deceptive picture of exactly what was happening in its advertising and commerce line of business. As 2000 began, bringing with it the amazing news that AOL and Time Warner were going to merge, this segment of operations was the bright hope for AOL. Its online subscription business, true, was significantly larger and still growing. It produced revenues in 2000 of $4.777 billion, against a reported, though now tainted, figure of $2.347 billion for advertising and commerce. But everyone expected that growth in subscriptions would eventually flatten out (which, in 2002, it did), and here was this advertising and commerce business whooshing up like crazy–roughly doubling every year, in fact.

We all know now that the Internet bubble burst in March 2000, but at the time that fact was not obvious. And at AOL, for sure, the announced ambitions for advertising and commerce were then still extraordinary. At a joint meeting of the AOL and Time Warner boards in July 2000, Robert Pittman, the highly confident chief operating officer of AOL (who is now gone from the company), said that by the year 2005, he expected this line of business to produce $7 billion in revenues!

In your dreams–including the ones that began exploding in 2001. That year’s picture was helped out by $88 million in revenues that AOL Time Warner now says were “inappropriately recognized” and by $122 million in contested Bertelsmann revenues. Even so, the advertising and commerce line grew that year only to $2.673 billion, a tepid rise of 14%. And in 2002 the trend rolled over abjectly–like a worn-out dog–and revenues fell by a huge 40%, to $1.606 billion. The amount would have been significantly lower still had it not included $6 million of inappropriately booked revenues and $274 million from the Bertelsmann deal. In any case, the punishing experience of 2002 proved the idiocy and uselessness of all the contortions that AOL had put itself through in its advertising business: It was trying to get from a place it never was to a place it never could be.

During all the accounting events that led up to the $190 million restatement, including those that took place after the consummation of the merger in early 2001, AOL people were in charge of what was happening at AOL. Steve Case was the boss; Bob Pittman was originally No. 2 and later was the AOL Time Warner executive who had responsibility for AOL; Michael Kelly was the hard-charging chief financial officer (first of AOL, then for a time of AOL Time Warner); and a man named David Colburn –fired last August–ran the business affairs department that negotiated many of the smelly deals. In the meantime, the old Time Warner executives–Gerald Levin, who became CEO of AOL Time Warner, and Richard Parsons, now CEO–were in New York City, sort of listening in. What they knew about the happenings at AOL is unclear.

But the $400 million deal done with Bertelsmann, the big German media company, is different from the $190 million in that it spanned a regime change, in which the AOL forces lost power and Time Warner gained it. So people like Levin and Parsons were on the Bertelsmann case at certain key moments. The deal’s strangeness therefore deserves special attention.

When AOL and Time Warner announced in January 2000 that they would merge, Bertelsmann and AOL had a skein of connections. Steve Case and Bertelsmann’s CEO, Thomas Middelhoff, were good friends; Middelhoff was on AOL’s board; Bertelsmann was a significant holder of AOL stock (though it had also been a significant seller in the late ’90s, reaping glorious profits at per-share prices ranging up to around $95); and the two companies jointly owned AOL Europe. After the merger announcement some of these things had to go, for the simple reason that Bertelsmann and Time Warner were competitive media giants and couldn’t be in bed together.

So Middelhoff resigned from AOL’s board. And then in March 2000 the two companies said they had agreed on a complex put-and-call deal by which AOL would potentially buy out Bertelsmann’s 49.5% interest in AOL Europe. This business was then, and is now, a losing operation. But the price negotiated by the CFO of AOL, Kelly, was a product of Internet frenzy and was to be a monster $6.75 billion (or under certain circumstances even more). One major investor in AOL Time Warner recently called that deal the “killer” for the merger, though it is probably wishful thinking on his part to believe that this one transaction could have made the difference in a coupling so fated to fail.

If a minimum price of $6.75 billion was set, the exact timing and terms were not. Most important, AOL Time Warner had the right to pay in cash, stock, or a combination. There was also a delay factor built into the deal, specifying that payment would not begin, at the earliest, until 2002.

By March 2001, though, with the merger completed, AOL’s Kelly and Bertelsmann were down to hard negotiations about just what kind of payment–cash or stock–would be made. Looking at AOL’s tumbling shares, then fluctuating around $40, Bertelsmann naturally wanted cash. You might think that AOL would want the opposite, since it was loaded with more than $20 billion in debt and sure to need more if it paid cash. But what AOL really cared about, above all things, was a quid pro quo. AOL offered cash if “in exchange” (words used in AOL’s recent disclosures about the deal) Bertelsmann would sign up for ads.

And in the end a kind of compromise was reached: AOL Time Warner would pay at least $2.45 billion in cash (with the form of payment for the remainder of the $6.75 billion to be settled later), and Bertelsmann would buy $125 million in ads. When the $2.45 billion arrangement was announced in AOL Time Warner’s first-quarter 10-Q filing with the SEC, nothing was said about a $125 million advertising deal tied to it.

Bertelsmann’s ads, for such things as music products and book clubs, began to run on AOL, in most cases dwarfing the amounts being spent in those categories by other advertisers. But one former Bertelsmann executive remembers behind-the-scenes dissension at his company about the deal. He, for one, saw no use in advertising on AOL but was forced to go out and do it. Fortunately for his bottom line, he says, headquarters absorbed the cost of the advertising on its books rather than allocating it down to the operating divisions.

By the end of 2001, most of Bertelsmann’s $125 million had been spent, and AOL and Bertelsmann were back to negotiating the next tranche of payment. Mike Kelly (who declined to talk to us) had at that point been moved out of the CFO’s job, becoming the operating head of AOL. But the word at AOL Time Warner’s offices in New York City is that he continued to be the negotiator on the Bertelsmann deal. And certainly the style of what developed looked familiar: This time AOL agreed that in 2002 it would pay the entire $6.75 billion in cash, and in exchange, Bertelsmann would buy $275 million more of advertising on AOL (almost all of which ran in 2002).

So, to sum up: To get cash, Bertelsmann was willing, in effect, to cut $400 million from the purchase price (and maybe more; who knows?). AOL could have accepted that cut straight out, reducing the price it had to pay to $6.35 billion–and thereby netting a crisp, clean saving of $400 million. Instead, it opted to get that much in advertising, which though it may not have carried much in costs, certainly carried some. So AOL Time Warner did not, in that arrangement, garner a full $400 million. It’s totally weird–unless you know that the only reason for doing things that way was to capture advertising and commerce revenues.

We come now to the role of Time Warner executives in all this. By late 2001 there had been a regime change, in which the Time Warner crew had taken power from AOL. Jerry Levin was retiring in May 2002 but had designated Dick Parsons, not Bob Pittman, as his successor. A new CFO, Wayne Pace, formerly at Turner Broadcasting, had been installed in November 2001 and had been widely accepted as an upright, tell-it-like-is executive. And this new team was stepping up to the job of reporting the company’s results.

So in the spring comes 10-K time, in which the company must file its annual report with the SEC. The Bertelsmann deal got a lot of ink in that 10-K: The company, the filing said, would pay $6.75 billion in 2002 and was borrowing to raise the cash needed. But was there any mention that the $6.75 billion was offset by a $400 million advertising deal? Absolutely not.

FORTUNE sought to ask AOL Time Warner management about this omission, as well as many other points having to do with the accounting problems. But management, pleading the Washington investigations, wouldn’t talk on the record, and this writer wouldn’t talk off the record. Company executives merely repeated what they had said before: “As we stated in our Form 10-K, the company and its auditors continue to believe that the Bertelsmann transactions have been accounted for correctly. But, as we disclosed, we are engaged in ongoing discussions with the SEC staff to consider their views and any additional information they may have as part of the company’s continuing efforts to cooperate with the SEC’s investigation.”

Because AOL Time Warner wouldn’t tell us why it had omitted the $400 million advertising deals from its SEC filings, we can only speculate about the reasons. Maybe management and its auditor, Ernst & Young, honestly thought there was no need to mention the advertising. Then again, maybe they recalled what had happened in the first-quarter 10-Q–no reference to the first advertising agreement–and thought it would be controversially inconsistent to suddenly be making admissions about the Bertelsmann ad deals.

Although investors might think AOL Time Warner had a duty to disclose the advertising deals, the SEC’s declared problem with the Bertelsmann matter is not about disclosure but rather about the accounting for the advertising. As AOL Time Warner has described things, the SEC has a “preliminary view” that at least some portion of the $400 million should not have become revenues but instead should have been recorded as a reduction in the price that the company paid Bertelsmann.

Neither AOL Time Warner nor Ernst & Young agree with this argument. How could they, given that they did not include the Bertelsmann deal in the bad stuff that they acknowledged in the $190 million confession? Indeed, FORTUNE has learned that when AOL Time Warner signed off on the $190 million in October, it did not know the SEC had any problems about Bertelsmann. The SEC, for that matter, didn’t then know it either, because only later did it become educated about the Bertelsmann affair.

AOL Time Warner and Ernst & Young are not only defending the accounting but have also explained to the SEC in writing why it was sound. FORTUNE asked to see a copy of the explanation but was refused. We then directly asked Ernst & Young to brief us about the accounting issues, and they refused that request as well, saying they could not “breach the confidentiality of client matters.”

So we turned to some outside accounting experts. One, Jack Ciesielski, publishes the highly regarded Analyst’s Accounting Observer and is also a member of the Financial Accounting Standards Board’s emerging-issues task force. To Ciesielski, there’s no gray area to this issue at all. “I agree with the SEC,” he says. “The timing of the advertising contracts indicates they were part of the deal.” So what he sees is a “rebate” that should never have been accounted for as revenues but rather as an offset to the cost of the deal.

A sharper opinion still comes from Walter Schuetze, a former KPMG partner who also served as a board member of FASB, chief accountant of the SEC, and chief accountant of its enforcement division. “I suspect,” he says, “that the SEC staff is saying to AOL that only the fair value of the advertising that Bertelsmann bought can be booked as revenue. But that is such a diaphanous number that I wouldn’t put much stock in it. I think the entire $400 million should be credited to the purchase price.”

He refers to Bertelsmann’s buy of advertising as a “forced purchase,” similar to many others that AOL had cranked onto its books. As for Ernst & Young, Schuetze is not respectful. He says that on AOL, it has been the “most pliable auditor” he’s ever seen: “AOL’s accounting has been rubbish,” he says, “and Ernst & Young agreed to rubbish accounting.”

It is hard to follow an act like that, so we won’t try.

Ten years ago grunge musicians and college-age Cassandras who had never held a day job preached that corporate America would crush their generation’s soul and leave them without a pension plan. Films like Singles and Reality Bites chronicled their transition from college graduate to Gap salesclerk.

A few years later the core of Generation X–the 40 million Americans born between 1966 and 1975–found themselves riding the wildest economic bull ever. Salesclerks became programmers; coffee slingers morphed into experts in Java (computerese, that is)–all flush with stock options and eye-popping salaries. Now that the thrill ride is over, Gen X’s plight seems particularly bruising. No generation since the Depression has been set up for failure like this. Everything the dot-com boom delivered has been taken away–and then some. Real wages are falling, wealth continues to shift from younger to older, and education costs are surging. Worse yet, for some Gen Xers, their peak earning years are behind them. Buried in college and credit card debt, a lot of them won’t be able to catch up as they approach their prime spending years.

FORTUNE recently encountered the bitter and (now) experienced voice of Generation X in a chain restaurant in suburban Dallas. Age 32 and piercing-free, Karen Doss has found out that the alternative rockers were right. To pay for college she worked full-time as a secretary at Pillsbury world headquarters. After graduation in 1993, she accepted her sole job offer as an advertising copywriter, even though she despised the industry. She finally quit last year to get her real estate license so that she could better support her husband while he fulfills his dream of owning a bar.

Halfway to pension age, she has just $5,000 in a 401(k) and $20,000 in home equity. Ideally, someone her age should have at least $100,000 stashed away. “I don’t have a corporate pension, and they aren’t what they were,” she says. “Social Security is obsolete and ineffective. And I already know that I’m going to have to have a private health-care plan. I’m angry that I can’t seem to get a break.”

Yes, yes, yes, we know what you’re thinking. The free-spending slackers have only themselves to blame, since the dot-com boom should have made them rich for life. On the surface that’s true. A 30-year-old today is 50% more likely to have a bachelor’s degree than his counterpart in 1974 and earns $5,000 more a year, adjusted for inflation. But that’s where the good news stops. He also has more in student loans and credit card debt, is less likely to own a home, and is just as likely to be unemployed. His salary probably topped out during the boom, whereas his predecessor’s rose throughout his career. Social Security will start to evaporate as he turns 50–or before, if the lockbox gets raided–so he’ll have to depend almost completely on his own savings for retirement. The comparison with a 30-year-old in 1984 isn’t any rosier.

Gen X “has done worse than their parents have done according to a number of dimensions, like net worth and home ownership,” says Edward Wolff, a New York University economist who studies trends in income and wealth. In a recent paper Wolff notes that young households lay claim to a smaller percentage of total U.S. wealth than they did in 1989.

Additionally, the inflation-adjusted median net worth of a Gen X household ($9,000) is lower than that of a comparable household in 1989, according to the Federal Reserve’s Survey of Consumer Finances.

Silicon Valley and Manhattan aren’t the only stomping grounds for disgruntled young professionals. FORTUNE interviewed more than 50 Gen Xers in Dallas, Louisville, and Seattle, with jobs ranging from construction manager to software engineer (see table). Battered by the economy and the bad luck of being born between Madonna and Britney Spears, they’re Generation Wrecked.

The kids who toted STAR WARS lunchboxes are the most highly educated generation in American history: Almost 60% of Gen Xers have some college education, and 6.6% have graduate school degrees. The Census Bureau calls their pursuit of higher education the “Big Payoff,” since historically a college-educated full-time worker earns 1.8 times more over his lifetime than a high school graduate.

When you can’t find a job or pay your student loans, though, college can seem like the Big Rip-Off. Today, the median student loan debt is at its highest level ever, $17,000, compared with $2,000 when the baby-boomers were in their 20s. According to educational lender Nellie Mae, graduating students average $20,402 in combined student loans and credit card debt. Those who have borrowed to pay for professional school, especially doctors and lawyers, are increasingly likely to have immense debt that is not reflected in proportionately higher salaries. Twenty-eight percent of those surveyed by Nellie Mae had combined undergraduate and graduate student debt of more than $30,000, and for 22%, their loan payments ate up more than one-fifth of their monthly income.

After midnight at a young professionals party in Louisville, Steve Flores, 31, and his wife, Jessica, 32, mingle, while the rest of the revelers line up for last call. Steve is a communications specialist for the party’s sponsor, Brown-Forman, the big distiller. While working full-time, he is also pursuing an MBA. Although Steve worked to help pay for college, five years after graduation he has $40,000 of undergraduate debt to pay off; Jessica, an art therapist and professional harpist, has $50,000 in student loans. “I haven’t started paying back my student loans for undergrad because they’re deferred. I’m not taking any student loans for grad school,” Steve says. He isn’t so jovial when he thinks about the total tab. “We’re dreading the day we actually have to start paying.”

Those Big Payoff estimates rely on what 50-year-old college graduates make today to guess what 50-year-olds will make 20 years from now. That’s not all that useful. “Whereas their parents experienced rising wages over their lifetime, Generation X may not. So college may have been a bad investment,” says Wolff, the NYU economist. Adds Bruce Tulgan, a Gen Xer and founder of RainmakerThinking, a consultancy that studies labor trends: “I had a college president say to me, ‘I don’t know how much longer I can pull this off because people will start to ask, Is it worth this much money to be that much smarter?’ ”

A common misconception is that Gen Xers left college to find work in the dot-com go-go years. Not so. In fact, the climate in which they began working–the late ’80s and early ’90s–was pretty similar to today’s: an economic downturn followed by a jobless recovery. Gen Xers managed to survive in that environment by denouncing long-held workplace tenets like corporate loyalty.

It would take a skilled cartographer to map 28-year-old David Li’s convoluted dash through org charts at both big and small companies. After college in 1996, Li started out as an analyst for Accenture, worked as a health-care IT consultant for two other firms, and then became CTO of Claimshop.com, a medical claims processor.

Now, unemployed for a year and living in Dallas, Li says, “I’m not really looking for an entry-level position. But I need to realize that the job market now is a lot tighter than it had been when I first graduated from school.” He’s looking at jobs that pay around $50,000, 40% below the salary he was collecting at Claimshop. “I’m just hoping for something more along the lines of what you would normally expect to see from someone who has been out of school for four to five years.”

Li will probably find a job–at 6%, the unemployment rate among Gen Xers is around the national average–but he and others are discovering that previous experience means next to nothing. Jenifer Garcia is temping as a bartender in Seattle after having worked as a hardware tester for Intel, a programmer for MSN, and a manager for Barnes & Noble’s online division. Now the 29-year-old is applying for a full-time file clerk position again. “I feel like I’m 18 again, and not in a good way. I’ve gone through all of my savings and moved back in with my mom.”

Even some of Seattle’s dot-com winners have been humbled. Across town in a tonier part of Seattle, Rachel Best-Campbell and Alex Campbell bought their $700,000 house with proceeds from Alex’s stock options. They sold most of their shares of Cache Flow, now known as Blue Coat Systems, at $96. (The company’s stock now trades at $3, after a recent reverse split.) The Campbells’ luck dried up in April, when Alex was laid off, rehired as a contractor without benefits, then rehired yet again as a full-time employee but at a lower level.

After months of wondering whether Alex would have a job, Rachel feels no guilt about getting rich during the boom. “Clearly someone out there had $96 to pay for that share of stock, and they wanted it, and they bought it. My dad likes to say, ‘My 25-year-old daughter–she’s retired now.'”

Those who didn’t fulfill their early-retirement dreams in the late ’90s are beginning to realize that they may be in the workforce longer than their parents. “You don’t find many 65-year-olds working in advertising, so at some point the money must get good enough for people to retire. I don’t know,” says Luke Blackburn, a 32-year-old senior manager at a Louisville advertising firm. Luke has a house–he used money he received as a gift for a down payment–but little in the way of retirement savings. (Total: $0. He should have $50,000. Although he and Doss are the same age, his savings estimate is less since his living expenses are lower.) “I don’t see much future return for investments, either stock or even Social Security benefits. I plan for the kids, but there’s not much room for extra.” Luke doesn’t have a financial planner either. “The brokers only call you if they think you have money,” he says. “They started calling me when they saw my job promotion announced in the newspaper.”

At least the brokers’ attempts aren’t laughable. At a recent Department of Labor summit, a group of the country’s top economists, politicians, and marketers decided that the best way to get Generation X to plan for retirement was through targeted advertising campaigns. Slogans included “It’s your money, it’s your choice, and it’s your future,” “Save for independence day,” and “Wazzup.” Whatever.

Instead of creating catch phrases, the government should focus on creating retirement options that give Gen Xers –and baby-boomers too, for that matter–the flexibility to withdraw money from their accounts if they’re temporarily unemployed, starting a business, or just taking time out, say financial planners. Most important, the retirement accounts need to be portable to match the winding job paths of Gen Xers.

A New York Life Investment Management survey of high-net-worth Gen Xers found that the respondents thought they needed $2 million to retire. Not even close, says Beverly Moore, who conducted the study. A Gen Xer who makes $100,000 and wants to retire at 59 needs $7.3 million net of taxes to sustain that lifestyle. (That means saving $2,600 a month and assumes an 8% return.) The truth of the matter is that very few Gen Xers are saving enough to reach even the $2 million benchmark.

And a return to economic good times doesn’t guarantee that most Gen Xers will reach that level. Remember that many of the problems that existed in the early ’90s including falling real wages and the slow disappearance of the middle class, weren’t erased by the boom. In the case of wages, they only inched up during the dot-com years. (Economists are still trying to figure out why they didn’t rise more. One possibility: the influx of skilled foreign labor.) And of the wealth the boom created, the richest households gobbled up a disproportionate amount.

Back in Dallas, Karen Doss says she’s angry that she hasn’t been able to rely on family, an employer, or the government to help with her future. “The biggest problem with Social Security is that we have no control,” she says. “Sure, you can put your money away, but Enron will not go away, and there is going to be another WorldCom. [Corporate America] will still lie and steal our money.”

So is Karen prepared? On this subject, she does her best slacker impression. “I can’t even tell you how much I have in my 401(k), and I have two of them floating out there with companies. I’m just going to hope it works out at this point. I just wanna die young so I don’t have to deal with it.”

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