The NYT reports that Goldman Sachs was selling collaterized debt obligations (CDOs) based on its own mortgage backed securities and then bought credit default swaps (CDS) that were effectively bets that these CDOs would go bad. If this report is accurate, it is a remarkable story. It's not clear whether it is more incredible that supposedly sophisticated investors would buy Goldman securities that they supposedly near that Goldman was shorting or that an insurer would sell CDSs written against a company's own securities.
The point is that Goldman obviously knows much more about the securities it has issued than the insurer. It is difficult to believe that an insurer would be willing to issue an CDS under such circumstances.
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