Next week will bring the 26th anniversary of the infamous Exxon Valdez oil spill.  The details of the spill are well known and have been extensively reported. In short, on March 24, 1989 at about midnight, the Valdez ran aground on Bligh Reef in Alaska’s Prince William Sound and proceeded to spill oil into the sound. Its captain, Joseph Hazelwood, was sleeping off a bottle of booze at the time. Estimates for the spill range from 11 million to more than 30 million gallons. Indigenous wildlife was devastated and the environmental consequences of the spill are still being felt today.

I have always been fascinated by the Valdez incident, in no small part due to the unbelievably bad way in which the crisis was handled by energy colossus Exxon. The immediate response was flat-footed at best. Exxon Chairman and CEO Lawrence Rawl and his board of directors were meeting in London when the spill occurred, and made the decision to stay there in spite of the growing public outcry. In interviews, Rawl was dismissive of the incident. He was soon being lambasted in the press as uncaring and out of touch.

Many Exxon credit card holders cut up their cards and mailed them back to the company as a protest. And a generation of people like me have used the Exxon Valdez incident as a case study in how not to handle a crisis.

But not too long ago, I stumbled on a piece of trivia that once again shows how the unintended consequences of a company’s actions can impact the future in unimaginable ways.

Not surprisingly, Exxon was tied up in litigation for years over the Valdez incident. Eventually, an Alaska jury awarded the plaintiff nearly $300 million in actual damages and another $5 billion in punitive damages. Although Exxon planned to appeal the judgment (and did so successfully), at the time of the award the company thought it would be prudent to establish a $4.8 billion line of credit through J. P. Morgan. In turn — and this is where things take an odd twist — to reduce the amount of capital it would have to reserve against the line of credit, J. P. Morgan created the first Credit Default Swap (CDS).

Credit Default Swaps are financial instruments that resemble insurance for bonds. If you buy a bond and are worried that the bond issuer might default (fail to make timely principle and interest payments), you can buy a CDS from a third party. In return for small monthly payments to the issuer of the CDS, should the bond default you are guaranteed full payment of principle and interest by the CDS issuer. CDS can be an effective means of hedging against risk. But as we learned the hard way, they can also be riskier – way riskier – than a trip to a casino if used improperly.

CDS were one of the financial derivatives that were at the heart of the financial crisis in 2008. Speculators who wanted to place a bet on which way the bond market was going to go could buy CDS for bonds they did not actually own. In insurance terms, they had no “insurable interest.” Suddenly, hundreds of speculators could buy insurance for the same bonds – bonds in which they had no ownership whatsoever. Usually, the Vegas-like action was in CDS of subprime residential mortgage-backed securities, which famously went south in a big way. Instead of just the owner of the bond being made whole, these speculators reaped a bonanza at CDS issuers’ enormous expense.

CDS are what nearly brought down AIG, which had sold them as fast as they could – it looked like easy money. And in a short time, the financial markets experienced an unprecedented downturn and everybody suffered to some degree.

Some have marveled at how nobody on Wall Street went to jail for their role in causing the financial crisis. Wall Street executives have become so adept at pointing fingers elsewhere, it is amazing to me that no one has pointed at the one person who might have prevented both crises — Captain Joseph Hazelwood of the Exxon Valdez.

Happy Anniversary, Captain Hazelwood.