Korbel,
The core of the Yankees championship teams of 1996 and 1998-2000 were home grown from the Yankees farm system: Jeter, Pettite, Rivera, Posada, Bernie Williams, et al. So I am not sure what exactly you are talking about, especially since the Red Sox have been spending almost as much money on free agents as the Yankees in years, and also not always with great results.
Farm systems go in cycles. When you are winning and have low draft picks, sometimes your farm system goes through lean years. The Yankees have been quietly stocking up on pitching in recent major league drafts with Hughes, Chamberlain, and Ian Kennedy. The Yankees are permitted to use the draft just like all the other major league teams, have done so shrewdly of late, and are about to reap the benefits.
Keep an eye on the standings, Korbel. Nobody has given up on anything. It's only August 1!