The good part is that Chat GPT is still underutilized. Most people have heard about it by now, but most are not using it. If they did, they would see just how powerful it really is. Even when they do, it’ll take some time for them to understand how to communicate with it. For the developer community, it’s pretty simple and we’re understanding the scope of its capabilities…and it’s frightening.

I started noticing a downward trend in the last month with my articles. They’re getting less interaction and even the earning is a quarter of what it used to be, not that it was much anyways. My articles mainly focus on programming and explaining programming concepts. The question that’s playing over and over in my head is, why would anyone search for these types of articles online when they can just ask Chat GPT? And I haven’t come up with a good reason for it.

I can understand books where you want to get yourself educated on a concept. However, if you know the concept enough, why would spend the time searching Google when you can just ask Chat GPT to craft an answer for you? The results really are frightening, exciting, but frightening nonetheless.

A few days ago I was speaking with my friend about mortgage rates going down. I was confused as to why mortgage rates would go down in the case of a banking crisis. It was being reported but with no explanation. He didn’t have a response for me. So, he started to ask Chat GPT. Here’s the conversation with Chat GPT.

According to the article, mortgage rates have declined due to several bank failures leading investors to seek the safety of Treasury bonds, which has pushed down yields and consequently, mortgage rates. Despite this short-term benefit for borrowers, longer-term uncertainty is expected to make buying a home unaffordable for many. Economic data suggests that the Federal Reserve may need to continue hiking its benchmark lending rate to cool down the US economy, which could lead to higher mortgage rates in the future. However, recent events such as bank failures may prompt the Fed to remain conservative in its rate hike decisions to ensure stability in the economy. The article also notes that while lower mortgage rates have caught the attention of homebuyers, the ongoing economic uncertainty and higher housing costs have made buying a home unaffordable for many.

Explain it in simpler terms. Why would treasury bonds affect mortgage rates? Whats the connection?

When investors are worried about the economy or uncertain about the stock market, they often turn to safe investments like government bonds, particularly Treasury bonds. This increased demand for Treasury bonds causes their price to go up, which in turn causes their yield (the interest rate they pay) to go down. Mortgage rates, which are the interest rates that lenders charge borrowers for home loans, tend to follow the yield on Treasury bonds. So when Treasury bond yields go down, mortgage rates also tend to go down. This is because lenders can borrow money at a lower cost and pass those savings on to borrowers in the form of lower interest rates.

Explain more why one going down causes the other to go down.

Treasury bonds are considered to be one of the safest investments available because they are backed by the full faith and credit of the US government. This means that investors are confident they will receive the promised interest payments and the return of their principal when the bonds mature. When investors become nervous about the economy or the stock market, they tend to shift their money into these safe investments like Treasury bonds, which drives up the demand for them. As the demand for Treasury bonds goes up, their price goes up too, which in turn drives down their yield or interest rate.

Mortgage rates are determined by the supply and demand for home loans, which are packaged into mortgage-backed securities and sold to investors. When Treasury bond yields go down, mortgage rates tend to follow because investors can earn similar returns by investing in mortgage-backed securities instead of Treasury bonds. This increased demand for mortgage-backed securities drives up their price and drives down their yield, which translates to lower mortgage rates for borrowers. So, when Treasury bond yields go down, it becomes cheaper for lenders to borrow money to fund new mortgages, which allows them to offer lower interest rates to borrowers.

Why does it translate to lower mortgage rates for borrowers (people who buy homes)?

When Treasury bond yields go down, the interest rates that investors earn on those bonds also go down. This makes Treasury bonds less attractive to investors who are seeking higher yields on their investments. As a result, they may turn to other investments, such as mortgage-backed securities, which offer higher yields than Treasury bonds. This increased demand for mortgage-backed securities drives up their price and drives down their yield, which translates to lower mortgage rates for borrowers.

Mortgage rates are the interest rates that lenders charge borrowers for home loans. When the yield on mortgage-backed securities goes down, lenders can borrow money at a lower cost and pass those savings on to borrowers in the form of lower interest rates. So, when Treasury bond yields go down, lenders can offer lower interest rates on mortgages to attract more borrowers and remain competitive in the market. This makes it more affordable for people to buy homes because they can borrow money at a lower cost.

Wait, why are the lenders borrowing money?

Lenders borrow money from various sources, such as banks, to fund the mortgages they offer to borrowers. The interest rate at which they borrow money from these sources is called the “cost of funds”. When the yield on Treasury bonds goes down, it becomes cheaper for lenders to borrow money from banks and other sources because the cost of funds also tends to go down. This means that lenders can offer lower interest rates on mortgages while still making a profit.

But why would a lender need to borrow money? Aren’t they the ones offering loans?

Yes, lenders are the ones who offer loans to borrowers. However, they don’t use their own money to fund these loans. Instead, they typically borrow money from banks or other sources to provide the funds for the mortgages they offer to borrowers. This allows them to make money by charging interest on the loans they provide.

When lenders borrow money to fund mortgages, they pay interest on that borrowed money, which is called the “cost of funds”. The lower the cost of funds, the cheaper it is for the lender to borrow money, and the lower the interest rates they can offer to borrowers. So, when Treasury bond yields go down, the cost of funds for lenders also tends to go down, allowing them to offer lower interest rates on mortgages to attract more borrowers.

So the lender is also a borrower in this case?

Yes, that’s correct. In the case of mortgage lending, the lender is also a borrower. The lender borrows money from banks or other sources to provide the funds for the mortgages they offer to borrowers. The cost of borrowing that money, which is known as the “cost of funds”, is factored into the interest rate that the lender charges on the mortgage.

When the yield on Treasury bonds goes down, the cost of funds for lenders also tends to go down. This is because Treasury bonds are a benchmark for interest rates in the economy, and when their yield goes down, other interest rates tend to follow suit. So, when the cost of funds for lenders goes down, they can offer lower interest rates on mortgages to borrowers. This makes it more affordable for people to buy homes because they can borrow money at a lower cost.

Isn’t this basically just an interest arbitrage that the lenders are pulling off then?

Yes, in a way, lenders are engaging in interest rate arbitrage when they borrow money at a lower interest rate and lend it out at a higher interest rate. They make a profit by charging a higher interest rate on the loans they provide to borrowers than the interest rate they pay on the money they borrow.

When Treasury bond yields go down, the cost of funds for lenders also tends to go down, allowing them to offer lower interest rates on mortgages to borrowers. This makes it more affordable for people to buy homes, and it can stimulate the housing market. However, lenders still make a profit by charging interest on the loans they provide, even though the interest rates they offer may be lower than they were before. This is because the interest rate arbitrage opportunity still exists, just at a lower level.

How scary is that? It knew exactly what was being asked of it, responded intelligently and kept breaking it down until we understood the concept. There have been only a couple of times in history that a change this drastic was upon us. Chat GPT has the power to change the education system, and it’s already doing it. Students are using it heavily for homework, papers, etc. Imagine what happens when the professors now start using it for lesson planning. AI teaching our youth and our youth using AI to answer the questions. Seems like a simple way to shift the mindset of a generation, and it can start as early as kindergarten.

It’s funny the kind of conversations that we’re having right now. The amount of times that I thought, “is this a tinfoil hat kind of conversation that we’re having right now?” and then you realize that it isn’t. It’s getting to the point where your imagination is the limit. I believe that we’re going to see some radical improvements in the next decade or so and numerous other changes that may or may not be so great.