Closing on a real estate deal is a lot of paperwork and promissory notes. Even if you pay “cash,” no one (except perhaps a mafia boss) will accept a suitcase filled with several hundred thousand dollars in cash.  It’s just too easy to counterfeit.  So, how did James Monroe and Robert Livingston, who concluded a land deal they were NOT authorized to make, close the deal with Napolean and buy Louisiana?  Napoleon was what we call a “motivated seller.”  He was short on cash due to the continent-wide war he was waging.  Perhaps he wasn’t the mafia but he was prepared to make Livingston “an offer he can’t refuse.” But how do you pay the bill?

In 1801, James Monroe and Robert R. Livingston were sent to Paris not to buy the enormous swath of land, but to negotiate the purchase of New Orleans and securing shipping rights on the Mississippi River.  President Thomas Jefferson had authorized the negotiators to spend up to $9 million and the delegation traveled to Paris with $3 million in gold. Napoleon decided he needed more money and offered the whole Louisiana Purchase for $15 million. Livingston and Monroe made the deal without Jefferson’s or Congress’ authority (only Congress can appropriate funds).  They felt they just couldn’t pass up the deal.

In a closing ceremony that makes modern real estate closings seem simple, the purchase was paid with the above-mentioned $3 million in gold as a down payment, and a credit from France canceling of $3.75 million in debt that France owed to the US for French piracy since the Revolution.  The balance had to be paid in promissory notes or bonds.  French banks were too nervous to accept these bonds so two foreign banks had to step in to provide the cash. The first was Hope and Company, a bank based in Amsterdam.  The second was a London bank, Barings.  Both the Netherlands and Great Britain were a war with Napoleon.  The deals went through but in order to get the cash, Napolean had to sell the US bonds to these banks at a 12.5% discount. 

Talk about closing cost.  Napoleon’s $15 million deal netted him only $10.22 million.  Vive L’France…

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