One of the many villains in the Financial Crisis Inquiry Commission report out Thursday is Goldman Sachs (GS), the Wall Street giant that, according to page 235 of the report, recognized the delusion in the subprime mortgage market and decided to short it before the crash in 2008. Goldman came under fire following the crisis by allegedly selling clients on mortgage-backed securities and other various financial instruments it was allegedly betting against on the side. Bond insurer ACA Financial Guaranty filed suit in January seeking $30 million in compensation and $90 million in punitive damages from how Goldman marketed the synthetic collateralized debt obligation named ABACUS. In 2010, Basis Yield Alpha Fund, a hedge fund and Goldman client, sued the firm alleging it was frauded out of $11.25 million in investments in the Timberwolf CDO. Goldman CEO Lloyd Blankfein told an FCIC hearing on Jan. 13, 2010 that the bank regretted selling clients MBS that it believed would default while shorting them simultaneously. But the bank reversed course and issued a press release the day after the testimony, clarifying that Blankfein was "responding to a lengthy series of statements followed by a question that was predicated on the assumption that a firm was selling a product that it thought was going to default…Mr. Blankfein does not believe, nor did he say, that Goldman Sachs had behaved improperly in any way." But the FCIC report shows that in December 2006, Goldman executives "decided to reduce the firm's subprime exposure" after an initial decline in its asset-backed securities indices and 10 consecutive days of trading losses. Analysts at the firm submitted a report on "the major risk in the Mortgage business" to Chief Financial Officer David Viniar and Chief Risk Officer Craig Broderick on Dec. 13, 2006, the commission reports. The next day, executives began reducing their mortgage exposure. What follows is a narrative of Goldman employees moving the subprime risk, and when customers began to dwindle, the FCIC cites documents indicating that the firm "targeted less-sophisticated customers in its efforts to reduce subprime exposure" rather than hedge funds that were on the same side of the trade as Goldman. From December 2006 to August 2007, Goldman sold roughly $25.4 billion of CDOs, including $17.6 billion in synthetic CDOs, according to the FCIC. Goldman did not have a comment on the FCIC's report, and neither did ACA Financial Guaranty. A spokesperson for Sen. Carl Levin (D-Mich.), who chairs the Permanent Subcommittee on Investigations, said that while Levin had no comment on this report, the subcommittee would have one of its own soon. The FCIC falls short of declaring a verdict on Goldman. It noted that the firm's President and Chief Operating Officer Gary Cohn testified that the bank lost $1.2 billion in its residential mortgage-related business during the two years of the financial crisis as proof that it did not bet against its clients, but it did point out that Goldman began buying more exposure after the initial short to strike a balance on the company's "Value at Risk" measure. The VaR tracked potential losses at Goldman if the market moved unexpectedly in any direction. By February 2008, the VaR was at all-time high, driven by the firm's one-sided bet against subprime, and the bank began buying again to even out that imbalance, the FCIC reports. While dissent for the FCIC report point to public panic, lax regulations and overreaching U.S. housing policy, the Goldman saga found within the commission's conclusions at the very least shows a firm frantically trying to exit a series of financial instruments it didn't fully understand. The FCIC shows the now infamous architect of these plans, Fabrice Tourre, then a vice president on the structured product correlation trading desk taking in the chaos. The FCIC reports that in an email sent from Tourre to Tom Montag, the co-head of global securities at Goldman on Jan. 31, 2007, he said there was "more and more leverage in the system," and referring to himself in the third person was "standing in middle of all these complex, highly levered, exotic trades he created without necessarily understanding all the implications of those monstrosities." Write to Jon Prior. Follow him on Twitter: @JonAPrior