This is no different than the manipulation that happened with LIBOR. Back then the media was quick to point out that the manipulated interest rate impacted pension funds, mortgages, and everything in between.

The fed is doing the same thing by stepping in and manipulating the overnight rate. Without the fed doing this, banks would have to plan ahead and make sure they have sufficient liquidity. This means maybe offering better interest rates to earn customer deposits.

With the major banks still calling 0.05% “high yield”, I don’t think it’s appropriate for the fed to continue to enable their incompetence. Furthermore, the banks hold a significant inventory of foreclosed homes on their books. They’ve been sitting on them for years. It’s time they sell that resource to people who need them.

I mean that given that the Fed will act if the banks do nothing, and that doing something will make the banks loose money, it is inevitable that the banks will "drag their feet". As you understand, I am not commenting on the moral aspect.

Part of the problem is the fed has tried to raise short term rates while the rest of the world has had a zero interest rate policy. Meanwhile, the US interest rate curve is inverted. So banks, who typically lend long and borrow short get squeezed. So even if the fed is targeting 2% rates, but the 10 yr is at 1.5%, a bank really shouldn’t be borrowing from you at 2% to lend it out to someone else at 1.5% on a ten year loan.

Maybe it's because the rest of the world can though. If you look at the debt to GDP ratio of Germany, Russia, China, it is much lower than the United States. Recently it was reported by AB Bernstein that the Debt-To-GDP ratio in the United States -- the real Debt-To-GDP Ratio -- is 1,832%!! https://interactiveswingtrading.com/2019/09/09/ab-bernstein-...

Following that line of reasoning, isn't a bank incentivised to accrue as much debt as possible because the fed will just bail them out if they can't pay it back?

Taken to the extreme, yes. If enough banks do it, the reason for bailout is called "too big to fail".

That's the moral hazard, yes.