S&P’s Roots Go Back to the Railroads

Standard & Poor’s (S&P) has been much in the news after its historic move to downgrade long-term U.S. debt from AAA status to AA+ with a negative outlook on Aug. 5. But who was Mr. Poor and how did his agency become the arbiter of creditworthiness?

Back in the mid-1800s, Henry Varnum Poor was a man on a mission. He saw investors pumping their money into the then-booming railroad industry without basing their investments on any background information or credible research about the industry, said the Philadelphia Inquirer.

So in 1860, Poor published “History of Railroads and Canals of the United States,” an assemblage of financials about the railroad industry geared toward investors, which he then proceeded to update annually with new information, according to the Chicago Tribune. In 1906 Poor’s Publishing was merged with Standard Statistics, another financial information provider, thus creating the Standard & Poor’s of today, said the Korea JoongAng Daily, a Korean news publication associated with the International Herald Tribune.

But it was the U.S. government that bestowed upon S&P the significant powers it has today, according to NPR.

At the start of the Great Depression, the government began taking a hand in regulating the health of the banking system in an effort to avoid another crisis, part of which involved keeping tabs on the quality of banks' investments, said NPR. The government at the time decided the best way to do this would be to have an outside private agency rate the quality of the bonds banks were investing in -- which is where S&P, and other credit agencies such as Moody’s and Fitch, entered the scene, according to NPR.

View a timeline of S&P’s history on the company’s website.