September 19, 2007 (LPAC)--Lehman Brothers' posting yesterday of lower-than-expected losses was based in part on new fairy tale bookkeeping regulations, which allowed the securities firm to book as profits the write-off in value of some of its debt, the Financial Times reports today.

The world's major securities firms are actually, technically bankrupt, as a result of a massive John Law-style bubble in financial assets, of which the mortgage bubble is only the tip of the iceberg. But any expectations that the firms might try to make use of the downturn to write off significant chunks of their bad debt, were dashed by the two reports released so far. As admitting the truth would lead to market chaos, the policy appears to be to lie - and bring on the chaos anyway.

Today, Morgan Stanley, which was less exposed to the immediate crash in mortgages, reported larger losses in their presumably still whitewashed earnings report. Morgan Stanley, the second largest securities firm in the world, reported this morning a 17 percent decline in third quarter net income, which included over $1 billion in losses from hedge funds and write-offs of bad debt, according to MarketWatch.

With their fancy footwork, Lehman Brothers, managed to overcome a 47 percent drop in revenue from fixed-income capital markets. Lehman claimed a net hit of $700 million from bad investments in the third quarter. The actual loss was much larger, but was offset by hedging and other factors, Lehman claimed. The firm's loss was reduced by "several hundred million dollars" by being allowed to treat a write off on the value of Lehman's own debt as a "profit."

The largest security firm, Goldman Sachs, and the well-known basket case Bear Stearns, release their third quarter earnings reports Thursday.