Financial History Issue 112 (Winter 2015) | Page 35
Collection of the Museum of American Finance
companies. This provided brokerage
houses on Wall Street the option of outsourcing the compilation of information
on bond offerings that had previously
been done in-house.
Blake’s Standard Statistics Bureau
purchased the Babson Card System in
1913. That same year, John Knowles Fitch
founded the Fitch Publishing Company,
which also supplied business statistics
to investors and the financial industry.
These first publications were informative
in nature. Later on, these same publishers
would begin to provide advisory services,
including bond ratings, to investors.
The effort to measure the creditworthiness of businesses dates back to the
mid-19th century, when mercantile credit
reporting agencies were founded. These
agencies, while not necessarily assigning
ratings to specific bond issues in the same
way Moody and others would do later,
nonetheless helped lay the groundwork
for the establishment of the modern credit
rating agencies.
The first of these was the Mercantile
Credit Agency, which was founded by
brothers Lewis and Arthur Tappan in 1841.
Reports about the ability and reliability of
merchants in repaying debts were collected
by a network of correspondents and relayed
back to the agency’s New York offices.
Rather than being published in print,
reports were read to customers in a whisper
at the agency’s offices. In 1849, John M.
Bradstreet began to distribute credit reports
as well. Bradstreet chose to publish his
credit reports, mailing them to customers
first on loose-leaf paper and then in bound
books in 1857 after moving his offices from
Connecticut to New York. At the same
time, Bradstreet also introduced a rating
system for creditworthiness, using letters
A through E. As he did with the format of
Poor’s manual of railroads, Moody would
later integrate Bradstreet’s lettered rating
system into his own bond ratings.
The same entrepreneurs who noticed
an untapped market for business statistics saw another market blossoming: the
market for opinions about the future.
Knowing how a particular railroad company had fared in the past was well and
good, and knowing current information
The May 1915 edition of Moody’s Magazine.
was also important, but many investors
wanted more. Ultimately, they were more
concerned with how the securities they
bought would perform in the future, rather
than how they did in the last decade/year/
month/week.
Thus, the stage was set for the arrival
of economic forecasting. Roger Babson,
creator of the Babson Card Service, was
one of the first entrants into this new
field. While Babson was not the first to
make predictions regarding the future
movements of securities prices, he was
among the first to publish his predictions
on a massive scale. Various methods of
forecasting were prevalent at the time.
Inspired by both his interest in meteorology and by the 19th-century works
of Samuel Benner, who linked economic
conditions to the production of pig-iron,
Babson collected statistics about commodity prices, production and manufacturing, imports and exports, immigration
and other miscellaneous information. He
then created a “barometer” of general
business activity.
www.MoAF.org | Winter 2015 | FINANCIAL HISTORY 33