In the “Now I’ve Seen Everything” category, Wall Street has come up with a positive spin for bond losses.

This is how it works: I issue $100 billion worth of bonds. Later, because of the credit crisis or because others fear I can’t pay off the bonds, the value of the bonds sinks to $80 billion. The poor saps who own those bonds have a “mark to market” paper loss of $20 billion. But since I now “owe” only $80 billion - in a sense - I have just booked earnings of $20 billion. Neat, huh?

Here’s the rub: in the real world I still owe $100 billion. And when I pay off the $100 billion I then book a “loss” of the $20 billion as my debt just increased in value from $80 up to the full $100 billion.

These guys are insane. And they wonder why we want to own gold and silver.

The ones doing this are big names: Merrill Lynch, Citigroup and four others. Oh, yes, and Bear Stearns apparently liked the new Wall Street math as well. The full story on Bloomberg is here.

Maybe you ought to protect yourself with a dose of real math, check out Big Gold from Casey Research.