Three of the financial minds who warned of the current credit crisis — Banc of America Securities-Merrill Lynch’s Richard Bernstein, PIMCO’s Paul McCulley, and author and former Wall Streeter Richard Bookstaber — offered their views on the current economy and what investors should do in this market on WealthTrack with Consuelo Mack recently. (Click on the WealthTrack Video on Demand image to watch the video.)

Bernstein said it is difficult to form a consistent investment strategy when the system is not following a typical risk/reward pattern. He says his firm has tried to form well diversified portfolios — something that has become harder to do as more assets seem to move in synch, and swing for singles instead of home runs. Some assets that still offer diversification: Treasuries, high quality munis, and gold (though gold is losing some of its diversifying benefit as its price rises higher).

Bernstein says he thinks the U.S. is better off than many other countries dealing with similar crises, and says investors should turn their focus to the U.S. and developed countries rather than emerging markets, as they had done for several years prior to the crisis. But he also says he wouldn’t rush out to buy stocks, and a big reason involves earnings.

S&P 500 operating earnings, and now even reported earnings, are negative, Bernstein says, and he thinks that may happen again when first-quarter figures come in. That means that, for the first time ever, trailing 12-month earnings per share may be negative for the S&P 500, which would mean the market would lack a P/E ratio. That could be very unsettling for investors and potentially lead to another leg of downward pressure. He also says it’s better to be late than early — his firm’s research indicates that, 80 percent of the time, moving from Treasuries to stocks six months before the market bottoms ends up being worse for your portfolio than switching six months after a bottom occurs.

One more note from Bernstein: He says to continue to avoid financials, despite the recent bounce many have enjoyed. In past crises, he says, the government has facilitated consolidation in banks, but now is doing the opposite, allowing the excess capacity built up during the credit bubble to remain. “As long as that excess capacity is left around it’s going to be very difficult to get what we would now consider to be somewhat of a normal credit cycle,” he says.

McCulley says the most critical problem for the U.S. is fixing the financial system. “The financial system is indeed the artery system for our economy,” he said. “And we’ve had a heart attack and hardening of the arteries.”

McCulley thinks Treasury Secretary Tim Geithner needs more money to address the problem, but thinks the chances of that happening are slim. How will it play out? “We’re in the middle of this thing,” he says. “I can’t forecast with a straight face exactly when or how it’s going to end.” He recommends taking one step from “purer” government plays like Treasuries and going into the highest quality private sector debt. The senior debt of the banking system is a good place to look, he says, adding that he thinks that senior debt will be “sacrosanct” even if the government takes over the institutions. More specifically, he cites two-year notes from Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase, which yield about 7.5%. “To me that is a prudent step away from cash, which is yielding approximately a doughnut,” he says.

Bookstaber said that Congress is focusing too much on the AIG bonuses, at the expense of bigger problems. The $175 million in bonuses is about 1/100th of 1 percent of the government’s spending on the financial crisis, he says: “Bad as it may be, is this where we need to put the energy when we have fires to fight right and left?” He also says that the government needs a way to manage systemic risk in the financial system, something it doesn’t have right now.

Bookstaber says municipal bonds give some diversification right now, and recommends buying closed-end muni bond funds.