The Financial Times reports on a shadowy plot by Goldman Sachs (NYSE: GS)--as some would like to believe--to drive down prices of credit default swaps on certain mortgage-backed securities. The point of this alleged manipulation is unclear. Was the goal to punish MBS shorts, and help those who were long on the bonds? Did the firm want to take down a certain CDS market so it could buy the derivatives on the cheap?

Sen. Carl Levin has produced some emails from a fixed income trading executive, Michael Swenson, stating that the bank should start selling CDSs at cut-rate prices. "We should start killing the ... shorts in the street, " said an email. "This will have people totally demoralized."

In another email, the Goldman exec wrote he wanted to "inflict maximum pain" on CDS holders.

This strikes me as the heat-of-the-moment rhetoric of an angry trader who was long on a lot of mortgage-backed securities--and probably had an inkling he was about to get slaughtered. He's mad and he wants the bond shorts, who are no doubt loaded up on CDSs, to be dealt with sternly. That's how it appears to me.

It doesn't seem like strong evidence of a plot. It's a great example, nevertheless, of why you should never send out emails in the heat of the moment. Your words could come back to bite you.

For more:
- here's the Financial Times article

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