Forget shorting the housing market and fueling the financial crisis. What the Senate subcommittee needs to focus on this morning is why Goldman was selling self-described “shitty” products to its own clients.

“Boy that timberwo[l]f was one shi**y deal,” Tom Montag, Goldman’s head of sales and trading, wrote in an email about $1 billion CDO called Timberwolf the firm was trying to shove down the throats of its own clients. The email, written to the head of Goldman’s mortgage desk in June 2007, was released by the Senate panel.

How would you like it if your stock broker sold you some crappy stock he thought was going to tank just so his firm could get it off their books?

Part of the Timberwolf CDO was offloaded to Bear Stearns hedge fund manager Ralph Cioffi, whose fund imploded in the summer of 2007. He was subsequently charged by the Feds with fraud, although a Brooklyn jury found him not guilty. Montag is now Bank of America’s president of global banking and markets.

The email shows Kerry Killinger’s concerns about hiring Goldman as a banker were right on the money. “I don’t trust Goldy on this,” WaMu’s chief wrote in an Oct. 12, 2007, e-mail. “They are smart, but this is swimming with the sharks. They were shorting mortgages big time while they were giving CfC advice,” he said.

Killinger was referring to Countrywide Financial, which hired Goldman in late 2006 to help it raise capital to continue funding mortgages. That assignment gave the firm an inside view of Countrywide’s books and marks on their mortgage products. Although he doesn’t say it explicitly, Killinger hints that Goldman was using that information to trade for its own account.

Goldman Sachs CDO Labeled ‘Shi**y Deal’ by Montag in E-Mail [Bloomberg]