In this big bad world of the Credit Crunch, powerful central bankers - civil servants all - have bent over backwards to help powerful and rich private bankers.

On one day, ‘debtonation day’, central bankers in Europe and the US pumped an eye-watering $150 billion into the financial system, to keep big banks afloat. According to Bloomberg, the US’s Federal reserve has ‘cycled $2.58 trillion through U.S. money markets since December’. (Bloomberg 8th August, 2008).

The UK Treasury and Bank of England found £55 billion of taxpayer-backed funding to bail out Northern Rock, and a similar amount (in the form of a ’swap’) to bail out the Royal Bank of Scotland. The latter was a very generous helping hand for a bank whose chief executive had taken risks, and made massive gains, but who had also taken unwise risks, and now faces massive losses. Sir Fred Goodwin (knighted by Gordon Brown) was quick to take the gains, but declines to swallow the free market price of losses for unwise riks… So the Bank of England has bailed him, and his bank, out.

Is the central Bank as keen to help the ‘little people’? It seems not, if a report in the Times last week is to be believed. (The Times, August 14, 2008). Tensions, it appears, have arisen between the elected Chancellor of the British government, Alastair Darling, and the unelected, and unaccountable governor of the Bank of England, Mervyn King. (Mind you the fact that Mr King is unaccountable, is partly down to this government granting the Bank of England semi ‘independence’ from elected governments.)

The government is rightly worried that banks and building societies are witholding loans from potential borrowers, and thereby gumming up the housing market. The Treasury is therefore trying to find ways of ungumming the works. A young member of my family, desperate to find a home for a new baby, is trapped in this gummed-up market. Mr King, it appears, is not moved. He ‘poured scorn on a… measure whereby the Treasury would temporarily guarantee high-quality mortgage-backed bonds to help struggling lenders to boost the funds available for mortgage lending.’

The Treasury’s plan is, of course, just another way the taxpayer would be bailing out private lenders - but it is a measure that could conceivably help ungum the housing market and give relief to these same taxayers - many of them individuals and households struggling to find a roof to put over their heads, or small businesses trying to avoid bankruptcy. Mr. King is willing to help rich bankers, but not those looking for homes or managing businesses. So he is putting his foot down, and the Chancellor and government appear too weak to over-ride his opposition.

Of course the biggest help that could be given to the millions of Britons and Americans facing the threat of ‘negative equity’, ‘foreclosure’ and bankruptcy… would be lower rates of interest on their debts -mortgages, business loans, auto-loans, credit cards. This would have the supreme benefit of helping debtors while not exposing innocent taxpayers to more liabilities and risks.

With lower rates of interest, debts might then become repayable, This in turn would help salvage the banks and the finance sector. But our elected representatives - in Congress and the House of Commons - have given away powers to set the rate of interest - to unaccountable central banks and private bankers. Alastair Darling has no power over what is known as the ‘official policy rate’ - the Bank of England rate of interest - even though the Bank of England remains a nationalised bank. Nor can Mr. Paulson do much about the Fed Rate. Darling’s predecessor gave away this power in a grand political gesture at the beginning of Labour’s term in 1997. The rate is now determined by an unaccountable committee, chaired by Mr. King at the Bank of England and by Mr. Bernanke in the US.

The Bank of England committee is digging in its heels, and refusing to cut interest rates to help struggling consumers and small and large businesses facing bankruptcy. Indeed interest rates are being maintained at a very high level in real terms, and this is crucifying millions of borrowers. Of course, if they were to cut rates, that might affect the nation as a whole - as Britain (like the US) is living beyond its means, and relies on foreign lenders to pay the difference… If they decline to lend, because the rate of return on their loan (i.e. the interest rate) is too low… who then will finance the UK deficit? And what will become of sterling? So we may sympathise with this dilemma (a dilemma brought about by governments failing to regulate and maintain a balance in our trade accounts). At the same time as ordinary taxpayers, we should demand that the Bank of England and the Federal Reserve place our interests first, above those of the private finance sector.

But curmudgeonly though Mr King and the Bank of England may be, the problem is a bigger one. Central bank governors, encouraged by elected politicians in both the US and UK, have allowed a parallel private bankers committee to set interest rates - the so-called London Interbank Offer Rate - or LIBOR. Now you may think this has nothing to do with ‘the little people’ but LIBOR is the benchmark for 6 million U.S. mortgages and more than $350 trillion of derivatives and corporate bonds. (Bloomberg 29 May, 2008).

I repeat, $350 trillion. That’s a lot of potatoes - to quote Damon Runyon.

Right now, this rate of interest - LIBOR - is out of control. ( See Bloomberg: Money Market `Plagued’ by Libor That Fed Can’t Reduce (Update3)). Central bank governors stand idly by and watch it ratcheting upwards, tightening the rack of torture to which debtors are manacled. Yesterday, the ex-chief economist of the IMF, Ken Rogoff warned that a big bank was bound to fail (Guardian 20 August, 2008). You can be sure if he knows this, central bankers and politicians know this too - yet they refuse steadfastly to end the torture.

Instead the torturers (central bank governors and finance ministers) are about to gather for their annual meeting at a delightful venue in the US - Jackson Hole, Wyoming. (See Dean Baker on this gathering.)

Guantanomo might have been more appropriate.