As monetary policymakers regroup after the Standard & Poor's U.S. debt downgrade, analysts say pondering more stimulus — or a third round of quantitative easing — would be a worthless endeavor without fixing housing's problems first. For some analysts interviewed by HousingWire, the crisis began in the mortgage finance space and ends there. It's a viewpoint Washington D.C. may be missing. "The Financial Stability Oversight Council has to push the banking system to clean up legacy issues before embarking on a substantial amount of further stimulus," said Manal Mehta, a partner with hedge fund manager Branch Hill Capital. Christopher Whalen, with Institutional Risk Analytics, said he doesn't see any back-door or direct stimulus by the Fed due to current stock market volatility. "Housing GSEs and top four banks are blocking trickle down (benefit) of refinance, so Fed policy is thwarted," he explained. "They must force GSEs to refinance all performing loans now, which will generate a new wave of prepayments to banks. Nasty, but necessary." Whalen added, "The key issue is housing. The housing market has been the chief conduit for monetary policy since WWII.  If the banks and GSEs don't allow mortgage refinancing, then there is no monetary stimulus." Mehta also said issues stemming from the emergence of too-big-to-fail institutions also need to be addressed. ()"I think the solution should entail putting the issues of the credit crisis behind us and proactively attacking the notion of too big to fail," he said. "Should banks like JPMorgan (JPM) and Bank of America (BAC) have balance sheets equivalent to 15% of GDP each?" he asked. "Regulators need to establish an RTC-type of vehicle to quickly and proactively clean up balance sheets by parking and resolving toxic assets, take the necessary pain, and set up a foundation to build for the future.” Write to: Kerri Panchuk.