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The "Big Three" credit rating agencies- Moody's, Standard and Poor's and Fitch - were all founded on the principle that investors would pay for information that would protect them from loss. And all three first began as publishers of business information in the early 20th century, but branched out into securities rating as the business information industry developed. Economic forecasting also boomed early in the 20th century, and it was the combination of business statistics and principles of forecasting that gave birth to the credit rating business.
The origins of the credit rating agencies date to the 19th century. During the mid1800s, railroads were the largest corporations in the United States. The railroad business was incredibly capital intensive and, as a result, the railroad companies issued securities - a wide variety of notes, bonds and hybrid debt-equity instruments- to finance the construction and maintenance of their infrastructure. Information about the health of railroad companies, particularly their financial health, was fragmented, providing an opportunity for pioneers in the field of business information and analysis.
One of the first of these was Maine lawyer Henry Varnum Poor. In 1849, Poor published the American Railroad Journal and followed it up with A History of the Railroads and the Canals of the United States in 1860. Then, with the help of his son, Poor founded the H.V. and H.W. Poor Company, which published business information for investors. In 1868, it published its highly-successful Manual of the Railroads of the United States and updated it annually thereafter. For a brief stint in 1890-1893, Poor also published a handbook on the securities of industrial companies. The lack of information about industrial companies provided an opportunity for future entrepreneurs as the number of publicly-held industrial companies grew.
The first of those entrepreneurs was John Moody, whose passion for transparency in business and information for investors dated back to his childhood. Moody's father lost vast sums in the stock market in the Panics of 1873 and 1879. This experience led Moody to believe that if better information could be supplied to investors, they could be better protected from the vagaries of the financial markets.
In 1890, Moody obtained a job in one of Wall Street's financial houses, Spencer Trask and Company. He...