For the last several weeks, the Occupy Wall Street Protests have been ongoing. Now over 900 cities around the globe are taking par in the movement, from Europe, Africa, Asia and North America. It is no wonder. Today Citicorp was upbeat when it released its quarterly earnings report. This comes on the heels of an upbeat JP Morgan Chase that released positive earnings last week. Bank of America is coming up. How did they do show good profit? Ever hear of a little known accounting rule change in 2010 called DVA, designed just for them?

Lets begin by looking at what have come to be known as "credit default swaps". According to Wikipedia, a credit default swap (CDS), "is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default. Generally, this involves an exchange or "swap" of the defaulted loan instrument (and with it the right to recover the default loan at some later time) for immediate money - usually the face value of the loan."

Major large investment banks have all created credit default swaps. In 2010 alone, the total value of CDS's was in excess of $26 trillion dollars. Here's the scary part about CDS's...they are not traded on any exchange, nor is there any required reporting to a government agency.

Enter a US accounting rule change called Statement 159, known as Debt Valuation Adjustment, DVA. This was adopted by the Financial Accounting Standards board. It allows banks to book paper profits when the value of their CDS's falls from par. DVA's allow banks to record gains when the cost of protecting their own debt with CDS's rises, reflecting a higher probability of default on derivatives contracts and other obligations. This rule uses the theory that a profit could be realized if the debt were bought back at a discount. Basically, DVAs permit banks to post paper profits when the value of their own credit quality declines.

Last week, analysts had projected that JP Morgan would report losses for the quarter. Instead JP Morgan reported well, almost in line with analyst expectations. However, that included a $1.9 billion pre-tax benefit from DVA. Citicorp also received a $1.9 billion gain from a widening in its CDS's. Morgan Stanley also boosted earnings by $1.5 billion. Bank of America claimed $4.5 billion in its earnings release. Goldman Sachs would receive roughly $300 million for the same.

While senior analysts are taught to look through the smoke and mirrors and see the DVA's for what its worth, that does not stop media companies such as CNBC from broadcasting how good earnings on JP Morgan and Citi looked, encouraging retail investors who don't know better to think that the banks are doing well and its time to invest in the market again.

It is no wonder that many bankers are denouncing Occupy Wall Street.