Morgan Stanley (NYSE: MS), the nation's second largest investment bank, posted its second quarter numbers today. As expected, the firm saw a hefty drop in quarterly profit. The ongoing credit crisis hit the bank hard and resulted in a 61% decline in quarterly profit, a number that could have been much worse.

The reason why I say that the situation could have been much worse is that the company benefited from the sale of around $1.4 billion in assets during the quarter. This contributed to a profit of 95 cents per share for the quarter.

The 95 cents per share was actually above Wall Street estimates, as analysts had been expecting to see the company show earnings for the quarter of 92 cents per share. But that has not prevented traders from pushing the stock lower in early morning trading. As of 11:00 am, we are seeing shares trading down 5% to $38.49.

Merrill Lynch and Co., Inc. (NYSE: MER) CEO John Thain said today that the risk in the housing market is "much lower" than it has been recently as the credit crisis in the U.S. is "getting better." Leave it to the leader of a company which has written off over $30 billion in mortgage lending investment to make this claim. But the thing is, could he be right?

Although Thain said "economic pressure" will remain high over the next year, he expressed confidence that the end of the housing bubble, which is still popping in many parts of the country, is now in sight. Thain also indicated that food prices and shortages as well as higher unemployment will continue to have an impact on the U.S. economy. Of course Merrill has had three quarters of disastrous results like other large investment banks, and the company is still toiling with the idiocy of incredibly risky investments that have left it weakened financially.

Even if Thain had been hired by Citigroup, Inc. (NYSE: C) last year, he'd be in the same mess in the same industry. I'm not sure what "much lower" risk in the housing market means, although he's probably talking about his company's reduced exposure to those SIVs and other vehicles from the Flintstone era that start off fast before the wheels fall off.

I hope Thain is correct in his assessments, and Merrill Shareholders are probably wanting the same thing, just much more badly than myself.

It has been a tough year for investors. We have been dealing with recession fears, housing market worries, high gasoline prices and a very weak U.S dollar. As much as we would love to say that the worst is behind us, we still could be in for some more rocky times ahead. So its best to try to figure out which stocks would be best to avoid for the time being.

Richard Gibbons wrote up a nice piece over on The Motley Fool that looks at some of the stocks that we would be wise to stay away from at this time. Regardless good or bad times, he is convinced there are always ways to make money, but in order to find the winners, it is also necessary to pull out the losers.

So how can we separate out the winners from the losers?

Gibbons seems to have a simple answer for this. He believes there is really no use in wasting our time trying to separate the winners from the losers as there are so many great cheap stocks that could offer us a chance to make money. Gibbons' advice is to not choose ugly and risky companies that could put our hard earned money at risk. To makes this clear, he uses a baseball analogy, expressing his options for the curve balls instead of the fastballs.

Shares of Credit Suisse Group (NYSE: CS) are trading higher despite that fact that the company reported a loss for the first three months of the year, hit by its exposure to the credit markets. European shares didn't react to well though as it was the bank's first quarterly loss in five years.

Credit Suisse posted a first quarter net loss of $2.1 billion as the global effects of the U.S. subprime mortgage crisis came with substantial write-downs. Thus, the company was forced to write down 5.3 billion francs ($5.3 billion) in mortgage securities and big buyout loans.

Making some comments on its quarterly earnings figures, the company stated its dissatisfaction with the current results, but on the positive side "most of our businesses performed well, with revenues near, or in some cases above, those in the first quarter of 2007." Looking ahead, the company's Chief Executive Brady Dougan is confident that Credit Suisse "will continue to serve as a safe haven for clients in uncertain and volatile markets, and to seize the opportunities that arise in times of market dislocation to create long-term value."

TheStreet.com's Jim Cramer says we know how it'll play out. Besides, there's money to be made elsewhere.

Nobody's dissing the credit crisis. We all see it. We know when it is back. We know that the write-offs for the banks and brokers and Fannie (NYSE: FNM) (Cramer's Take) and Freddie (NYSE: FRE) (Cramer's Take) will be gigantic if and when the Gang of Four (Ambac (NYSE: ABK) (Cramer's Take), MGIC (NYSE: MTG) (Cramer's Take), MBIA (NYSE: MBI) (Cramer's Take), PMI (NYSE: PMI) (Cramer's Take)) finally chokes to death. But we also know that Boeing (NYSE: BA) (Cramer's Take) and Honeywell (NYSE: HON) (Cramer's Take) and Schlumberger (NYSE: SLB) (Cramer's Take) and Lockheed (NYSE: LMT) (Cramer's Take) and all of the other stocks that are on the move, not to mention anything oil and gas, just aren't that levered to the crisis. I know that is heresy for many of you. How could the crisis not bring everything to its knees?

Because these companies are basically foreign companies. They are just not that important to the credit crumble.

Bloomberg News reports that Bank of America (NYSE: BAC) missed earnings expectations by 44%. Specifically, its first-quarter net income declined to $1.21 billion, or 23 cents a share, from $5.26 billion, or $1.16 a share in 2007. The 21 analysts surveyed by Bloomberg expected the bank to make 41 cents a share. The bank experienced a huge rate of late credit card payments in its $81 billion credit-card portfolio -- 5.8% compared with an industry average of 4.1%.

Bank of America's problem is its exposure to the housing market. Assuming 2% of its home-equity loans are uncollectible this year, the cost may be $2.3 billion according to a Fitch Ratings analyst. If the bad loans reach 5%, the damage could total $5.9 billion. Meanwhile, Bank of America is still on track to buy Countrywide Financial Corp (NYSE: CFC) which had $34 billion in home-equity loans at the end of 2007.

Both Bank of America and Countrywide have home-equity loans concentrated in the regions with the most foreclosure filings. California, Nevada, Arizona and Florida are the four states where housing prices are sliding faster than the national average -- ranking among the top 10 states with the most foreclosure filings in March.

With people increasingly worried about the housing market and the credit crunch, it's not a surprise that many consumers are saving their money instead of buying furniture and investing in their houses. And given the current market conditions, it's no surprise that Swedish retail chain Ikea has seen its sales under pressure lately.

Anders Dahlvig, Ikea's chief executive, recently stated that the furniture retailer has been experiencing sales declines in some of its major markets, including Spain, Italy, and Germany. Moreover, the company expects the U.S. economic slowdown to affect other European markets as well. Both the global economic slowdown and higher energy and food prices have weighed on consumer confidence, contributing to the company's weak sales.

Even so, Ikea is not cancelling its expansion plans. The company believes that the weak market conditions lower not only its sales but also those of its rivals. "In bad times the competition is hurting as well and I feel it is an opportunity for Ikea," Dahlvig declared.

With the financial crisis spreading quickly, housing stocks have been facing tough times over the past few months. But on the heels of these worries, shares of one of the nation's largest homebuilders, Lennar Corp. (NYSE: LEN), have been climbing today despite posting a first quarter loss, as its earnings results were not as bad as analysts had forecast.

The company announced it swung to a quarterly loss of $88.2 million, or 56 cents per share, compared with a profit of $68.6 million, or 43 cents per share a year earlier, hurt by lower new home deliveries and orders. Included in the company's earnings figures was a charge of 38 cents per share related to valuation adjustments and write-offs. Excluding that, Lennar's loss would have come at 18 cents per share, exceeding analysts' forecasts for a quarterly loss of $1.07 per share.

The company's quarterly revenue saw a huge fall of 62% to $1.06 billion, down from $2.79 billion a year ago, on pressure from the average selling price which lost 8%. For this period, the slumping housing market came with a drop of 60% for new home deliveries, and with a decline of 57% for new home orders.

The Federal Reserve announced this morning several measures to deal with the current liquidity crisis on Wall Street. It is creating a new Term Securities Lending Facility (TSFL) that will lend Treasury securities for 28 days as opposed to overnight under the current program. The key element of this program is that it will accept residential mortgage-backed securities (MBS) as collateral.

The Fed is also taking coordinated action with the other major central banks: The Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank. It has also authorized increases in the currency swap lines with the European Central Bank and the Swiss National Bank.

These actions are significant for several reasons:

• The Fed, by accepting MBS as collateral, is now attempting to inject liquidity directly to the area that is the source of the credit crunch.
• It is extending the term in order to give additional confidence that funding will be available for a longer period of time. No one will lend unless they are certain that funding will be available. This addresses the issue.
• The Fed is taking action on a global basis with other central banks. This an additional measure to build confidence in the financial markets.

Shares of luxury homebuilder Toll Brothers Inc. (NYSE: TOL) are higher in early trading despite posting a decline in its quarterly profit. It looks like the company is still looking for the light at the end of the tunnel as lower sales and increased write-downs resulted in weak earnings results.

During the first quarter, Toll Brothers said it swung to a loss of $96 million, or 61 cents per share as the weak U.S. housing market put a curb on demand and builders were forced to slash home prices. In addition, the company reported that the number of signed contracts for new homes dropped 46% to $573.1 million from the same period last year.

Included in the company's numbers were pre-tax write-downs of $245.5 million. Excluding that, the largest U.S. luxury home builder's earnings would have been $57.3 million, or 35 cents per share. Analysts, on average, forecast a quarterly loss of 44 cents a share.

Consumer confidence nearly hit a two-year low as consumers had to face a slumping housing market, tighter credit conditions and higher energy prices. The RBC Cash Index showed that December confidence fell to 65.9, close to a level of 64 in November, which was the worst reading since 2005 when consumer confidence dropped under the Gulf Coast hurricanes devastations.

According to economist Ken Mayland, president of ClearView Economics, consumers are facing "a great deal of fear and foreboding." The overall economy put pressure on consumers' confidence which has deteriorated sharply over the past year. In the month of December of last year, the Index reflected a solid reading of 86.9. Its level fell during the past year, hurt by the housing market collapse, higher home foreclosures, and harder-to-get credit.

Shares of luxury home builder Toll Brothers Inc. (NYSE: TOL) are trading up 1.72% in the premarket following this morning's fourth fiscal quarter earnings release.

The company posted a fourth quarter loss of $81.8 million, or 52 cents per share, hurt by the slumping housing market and credit crisis. Included in the company's figures were $314.9 million pretax writedowns related to sold homes that came with no profit. Excluding that, the company's fourth-quarter earnings were 72 cents per share. Analysts had been expecting to see the home builder lose 77 cents per share.

The company also posted a 35% decline in its quarterly sales, which slipped down to $1.17 billion, slightly ahead of analysts' expectations for sales of $1.166 billion.

According to a statement from Robert Toll, chairman and chief executive officer, the year of 2007 was "the most challenging of the forty years" as Toll Brothers posted its first quarterly loss in 21 years. Looking ahead, despite its disappointing earnings, the company anticipates to sell in fiscal 2008 homes in a range of 3,900 and 5,100 at around $630,000 to $650,000 per home.

Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.

Treasury Secretary Henry Paulson may finally be singing the right tune, but he still hasn't found the words to lead us out of this housing and credit crisis. From 2003 to 2006, as risky mortgages became more and more popular and as the housing bubble inflated on low interest and creative financing packages, the Treasury Department sat on the sidelines and let the market do what it wanted. Greed took over and today many are suffering - from low income borrowers who took loans they never should have taken to major global banks who didn't properly manage their risks.

The Treasury Department could have stepped in sooner with regulations to temper some of these lending practices, but that's not what the Bush administration favored. It preferred that the markets lead with very little regulatory input. Well now that the crisis is here, Paulson finally sees the light and admits that there needs to be an "enhanced regulatory role," according to today's Wall Street Journal [subscription required]. To me it seems like too little, too late. The mess is in place and it's not an easy fix.

Even worse, while Paulson admits regulation may be needed, he has no bright ideas of what that regulation should be - or at least he's not sharing them publicly. He may have ideas but hasn't been able to sell them to the rest of the Bush administration so he can't talk about them yet. Whichever is the truth, now is not the time to prod carefully. Now is the time for some bold moves if the Bush administration wants to turn this mess around before 2010 - the year the Mortgage Bankers Association believes we'll see some positive movement.

Lita Epstein is the author of more than 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Reading Financial Reports for Dummies."