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Goldman Sachs Partners Borrow to Cover Margin Calls

Tough times on Wall Street are reaching all the way to the highest levels of the most storied former investment bank—Goldman Sachs—as partners there are being forced to borrow money to cover margin calls, according to sources within the firm.

Several Goldman Sachs partners have leveraged their Goldman Sachs stock to buy alternative investments such as hedge funds & private equity, and they have done so through their Goldman Sachs brokerage accounts.

But Goldman stock has declined in value by more than 50 percent since last spring, meaning that Goldman Sachs is in the awkward position of making margin calls on its own partners, who can't meet those calls because their alternative investments are underwater and they don't have enough cash on hand.

Now those partners are being forced to borrow money—millions of dollars—to meet Goldman Sachs' own margin calls.

Sources at Goldman told CNBC that the borrowing is not a widespread phenomenon. It affects a "few" partners, sources say. But it is significant enough that the firm is arranging for its own financial advising firm to help facilitate borrowing for partners that need the money.

Buying stock on margin—basically on credit—is inherently risky. When markets turn down and stock values fall, the people who offer that credit call their clients, needing more cash to make up the lost value. These "margin calls" are a classic sign of bad times in the market all the way back to the depression, and now they're back, big time.

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Margin calls are fairly common on Wall Street and there are several high profile examples of top execs being squeezed by margin calls—Sumner Redstone of Viacom and Chairman/CEO Aubrey McClendon of Chesapeake Energy, for example.

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