From legendary short seller to god of American capital

Chapter 411 The Devil's Dictionary: Buying Future Tirari with Present Money

Larry knew that, after the series of events that had occurred, King Astor IV and his mother Charlotte trusted him implicitly, and this trust was the foundation for establishing a tacit cooperative relationship.

After all, Larry's mission this time required leveraging the century-old reputation of the "New York Landlords" and their superb and sophisticated operations; success was impossible without a foundation of trust.

Upon hearing King Astor IV's direct question, "What should we do?"

Larry smiled and looked at the old lady, then asked, "Madam, I once heard a rumor about the Astor family—"

Excuse my boldness, but may I verify this with you in person?

The old lady raised her eyebrows. "You may speak freely! I will not feel offended—"

"Hmm, okay then—" Larry pretended to hesitate for a few seconds before asking, "I heard that the Astor family's ancestral rule is never to sell land, and—it's passed down only to sons, not daughters?"

After asking the question, Larry appeared very flustered, stood up, and bowed slightly in apology, "—Madam, I really didn't mean to offend you! This is what I heard."

The old lady smiled magnanimously. "It's alright, child. Let me explain. This is a decision made by my father-in-law. Whether a woman marries into the Astor family or is a daughter of the Astor family, she must abide by this ancestral precept. I respect this precept; it reflects the wisdom of the Astor family!"

It turns out that the elder Astor (the second) had a plan to maintain his family's dominant position, which was to hold onto the real estate in New York and live off the land rent.

The first two generations of Astor had already accumulated a huge land reserve in New York, and the elder Astor could see that as long as the Astor family maintained its land holdings in New York, his family could prosper for a long time.

Old Astor also knew that his sons each had their own interests and demands, which was why he initially stipulated that the family land would never be divided into private ownership—because once property rights were clearly defined, some short-sighted sons would inevitably sell the land to seek short-term gains—which would be tantamount to killing the goose that lays the golden eggs.

The two ancestral precepts established by Old Astor were: 1. The land was held in a family trust, and he also had control over its sale,

He imposed numerous restrictions on the gifting of land and property, hoping that his descendants would not sell ancestral lands on a whim; secondly, all wives who married into the Astor family had to relinquish their husbands' inheritance rights, but would receive a fixed sum of money in return. Daughters were also not entitled to any land gifts, but could only receive money from the family trust.

It is quite obvious that at least the first ancestral precept has been broken. Last year, the land division among the three families caused a great uproar and a great deal of controversy. Larry also benefited from the land division.

After the old lady explained Aster II's ancestral precepts and motives, Larry repeatedly expressed his gratitude for her explanation.

King Astor IV gave Larry a deep look, frowned, and asked, "But what does this have to do with the New York subway we've been talking about?"

"The relationship is very close," Larry said with a smile. "I need to confirm the Astor family's ancestral precepts before I can proceed with my money-making plan. Thank you, Madam. So, I'll continue with the topic of the subway construction project—"

Larry held up his map of New York City, on which the proposed subway lines were marked with red and blue lines—red...

The main line runs north from City Hall to Harlem, while the blue lines represent east-west branches. The line avoids existing expensive real estate areas, instead passing underground through lower-priced neighborhoods, but includes stations at key locations such as Times Square, Herald Square, and south of Central Park.

"The Rapid Transit Act has been passed, and the committee is being established." Larry drew a line across the red line. "But the committee faces three problems: First, technical feasibility—would digging a deep tunnel cause above-ground buildings to collapse? Second, funding—it's estimated to require $35 million, and municipal bonds can only cover half of that. Third, land—the route needs to traverse underground spaces on private property, and every inch requires negotiation, compensation, and legal authorization."

King Astor IV looked at the red and blue subway lines and couldn't help but nod, "—Yes, yes! Larry, the land along these two subway lines was the land you told me to focus on acquiring during the last division of the family property. Very good, we now own a lot of land along the lines."

The old lady looked at her son, then at Larry, her eyes filled with surprise. "—John, you didn't tell me this before. It turns out you consulted Mr. Livingston when you were dividing the family land—if the subway really does pass through our property, we should thank Mr. Livingston; he made the land we divided appreciate in value significantly."

"Of course, Mother!" King Astor IV said with a smile.

Larry gently shook his head. "No, madam, considering that the subway line will continue to prosper for over a century, I personally feel that John doesn't own enough land right now."

When Larry said this, both the old lady and King Astor IV were stunned.

King Astor IV frowned and asked, "—Are you saying we should take advantage of the fact that the subway plan has just been announced and immediately start acquiring land on a large scale?"

"The land should be acquired, but not immediately," Larry said with a smile. "The subway route plans I can find out about are known to others as well; we can see that the land along the subway line will appreciate in value in the future, and others aren't fools."

"So what do you mean?"

Larry paused briefly at this point, and King Astor IV and his mother nodded in agreement with Larry's assessment.

"At the same time, over-investment in railways has destabilized the economic foundation. The capital adequacy ratio of banks has dropped from 37% in 1870 to 29% in 1892. Now banks are tightening credit, which is putting increasing pressure on many small and medium-sized enterprises and landowners. If their cash flow were to break down one day, that would be really bad—" Larry continued.

"Yes! That's obvious," King Astor IV reiterated his agreement.

Larry responded with a smile, then continued, "Madam, Mr. Astor, based on your family's experience and observations in New York, could you foresee a major panic in the future? Would those overly optimistic land speculators, and those speculators with high risk exposure, face significant inconvenience if they encounter future stock market and banking storms, to the point that they might even have to sell their core assets?"

Larry's words already contained a hidden meaning, and neither Astor nor his mother were fools; they naturally understood. "Of course! Our family has experienced too much panic and prosperity, so we can naturally see that a lot of land will be sold in the future—we can wait until the price is low and then buy it at the bottom," the old lady said.

King Astor IV chimed in, "So you mean—while we're optimistic about these lands, we could wait a year or two before acquiring them?"

Larry nodded slightly, then shook his head slightly. "That's true, but our cash is limited after all. Besides, with land prices falling, banks have tightened their lending. If we want to borrow more money from banks to acquire more land, I'm afraid no bank will be able to lend us much money. That's a big problem."

After a brief moment of thought, King Astor IV immediately straightened up and turned to look at his mother.

The old lady met his gaze, and their eyes met, both seeing the certainty in each other's eyes—Larry was right. If a real panic were to occur, land prices would be lower, but the money available to them would also be less. It might seem like they had waited for a once-in-a-lifetime opportunity, but in the end, they still wouldn't be able to acquire much land.

"Mr. Livingston, you're right—but what should we do?" The old lady's pale blue eyes scrutinized Larry; she knew he had the answer.

Larry, feeling he had laid enough groundwork, then offered his own answer: "We'll use the money we have now to buy land for the future, ma'am!"

King Astor IV's eyes froze instantly. "What? Use current money to buy—land for the future? How...how is this possible?"

"It's simple," Larry said. "We should set up a New York land mortgage trust company, and have them mortgage the land to the trust company before they sell it. Once the crisis hits, those high-quality land collaterals will be sold off, and then we can get the land that was mortgaged to us in advance." Larry put forward his plan and deliberately left enough time for the two to think about the deeper meaning of his words.

After Larry finished speaking, both of them remained silent, their eyes fixed on Larry's face.

"Use today's money to buy land for the future—" King Astor IV slowly repeated the sentence, his fingers unconsciously tracing the edge of the map, "through a—land mortgage trust company, so that those people will mortgage the land to us before they even sell it?"

“To be precise, it’s mortgaged to a trust company,” Larry corrected, pulling a pen from his inner pocket and quickly sketching on a blank sheet of paper. “But we need to understand mortgaging from a different perspective.” In common understanding, mortgaging means a borrower uses land as collateral to secure a loan from a bank or trust company. What we want to do is the opposite—he marked several boxes representing land on the paper and drew arrows leading to those boxes. Our trust company would proactively seek out owners of prime land who might face financial pressure in the next year or two. These might be overexpanded developers, factory owners with too much cash invested in the stock market, or scions of wealthy families who have inherited large tracts of land but lack cash management skills. We would offer them a solution: using your land as collateral, we would give you a sum of money in advance.”

"In advance?" The old lady astutely grasped the key phrase. "Before the crisis happens? Before they really need the money?"

“Exactly, madam.” Larry looked up with a warm smile. “It’s like—buying fire insurance in advance for a warehouse that might catch fire next year. The warehouse owner feels his warehouse is safe now and doesn’t need insurance. But if…”

If we can persuade him to give him a lump sum of cash at a very low premium—for example, one-third of the land's appraised value—he can improve his business, pay off other debts, or simply use it as a reserve.

In exchange, he needs to transfer the land mortgage to us for a period of three years. If he doesn't default within three years, the mortgage will be automatically released, he will reclaim the land title, and we will get back the principal and interest. But if—”

Larry paused, then drew an X on the box representing the land. "If the crisis really breaks out within these three years, and his funding chain breaks, making it impossible for him to repay our loans, then the land will be disposed of by the trust company. By then, the market price of the land may have already plummeted due to panic, perhaps to sixty percent or even fifty percent of the current appraised value."

King Astor IV gasped, leaning forward and staring intently at the cross Larry had drawn. "So—we're not betting on land prices going up. We're betting on a crisis coming, betting that those seemingly well-off property owners won't be able to pay their debts."

And once they can't repay them—"

“Once they can’t repay,” Larry continued, his voice steady as a bell, “we can acquire ownership of these lands at a price far below market value. And because the mortgages were established before the crisis, the enforcement process is simple and straightforward, with virtually no legal disputes.”

"What if land prices fall below the mortgage rate? For example, below 33%?" King Astor IV asked.

"Then it'll be like futures margin. If the land price falls to that level, either you repay the money immediately, or you immediately transfer the collateral to the trust company," Larry said with a smile.

"Those who mortgaged their land—will they agree?"

"They'll think—" Larry laughed, gesturing a distance a foot long, then shortening it to a third, "—that no matter how bad the economy gets or how much land prices fall, it's impossible for the mortgage rate to drop to 33%. Otherwise, they wouldn't be willing to take advantage of us."

After Larry finished speaking, the room fell silent. King Astor IV and his mother looked at each other again, both reading surprise and certainty in each other's eyes that the matter could at least be successful in theory.

"—My God, Larry, that's a ruthless move. But why didn't we do it ourselves instead of adding a trust company?" King Astor IV asked.

Larry smiled and softly uttered, "A company, a noun, a sophisticated organization that brings personal benefits without personal responsibility!"

"What do you mean?" King Astor IV asked, puzzled.

"This is a brilliant description from contemporary American writer Ambrose Beers in his book 'The Devil's Dictionary'! I completely agree. A corporation is a very effective tool for separating the owner's wealth from his business. Setting up a land mortgage trust will maximize returns and minimize risks. And, the two of us can run this company together."

By explaining the trust company's plan, Larry also laid out his own demands: since there is an opportunity in New York land, why not partner up and make money from it?

The old lady slowly leaned back in her chair, closed her eyes, as if performing complex mental arithmetic. A few seconds later, she opened her eyes, her pale blue pupils flashing with an almost cold sharpness.

"But there's a problem, Mr. Livingston—"

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