The natural disaster was the eruption of a volcano in Nicaragua. A French company which had previously dug the Suez Canal had begun digging what became the Panama Canal but ran into serious difficulties. The company had not done the proper geological studies and attempted to dig the canal without locks. It lost over $300 million and over 2,000 lives after having dug only one third the canal. The company, in an attempt to cut its losses, offered to sell the entire project to the United States for $109 million. President William McKinley appointed a commission to study the project; the commission determined that a better route lay through Nicaragua. The terrain there was more level than in Panama (which was then part of Colombia) and there was a very large lake that could be connected on either end. Bottom line, the Nicaragua route would be substantially cheaper than the Panama Route. Faced with losing their entire investment the French company lowered its price to $40 million, and sent letters to members of Congress supporting the sale. The letters contained a postage stamp showing a volcano erupting in Panama. Rather than a commemoration, it was a subliminal message to the members of Congress.
The efforts of the French did not stop there. Colombia proved difficult in negotiations with Washington, and the French Company sent a representative, one Bunau-Varilla to discuss aiding a possible revolt by the Panamanians from Washington. The U.S. sent a warship to Panama at which time the Panamanians revolted. Colombian troops could not cross the jungle to put down the revolt, and American warships blocked the sea route. Shortly thereafter, President Theodore Roosevelt received the first ambassador from Panama who happened to be named Bunau-Varilla. The U.S. recognized Panamanian independence and Panama granted the U.S. exclusive rights to dig the canal.
Interestingly, when Roosevelt asked his Attorney General about the constitutionality of his actions, the reply was:
Mr. President, if I were you, I would not have any taint of legality about it.