Emails sent by a senior Goldman Sachs employee show the investment bank’s traders were urged to “kill” rival investor positions, and cause “maximum pain”.

The archived messages were sent in May 2007, months before the financial crisis hit in full force, by Michael Swenson, an executive in Goldman’s fixed income trading division. They were dragged up in a US committee hearing this week, the Financial Times reported.

“We should start killing the ... shorts in the street,” Swenson wrote in one email to trader Deeb Salem. “This will have people totally demoralised.”

Goldman Sachs said the language “does not reflect the reality” of its trading at the time.

The chair of the US Senate’s permanent subcommittee on investigations, Carl Levin, said Goldman was adopting a “short squeeze strategy” to push down the price of credit default swaps on troubled investments known as mortgage backed securities.

As the housing market collapsed in 2007, investors increasingly rushed to short housing backed investments that were losing value, the FT reported.

Levin stated Goldman's steps could have allowed it to buy CDSs at low prices, which he said “looks like a trading abuse to me”. Goldman Sachs denies the accusations.

Swenson, in another email, wrote that Goldman should seek to lower prices on CDSs to “cause maximum pain” for existing holders of the securities.

At the time the messages were sent, however, the credit insurance market was unregulated, Levin noted.

Last July, Goldman paid $550 million (£349 million) to settle a lawsuit, with the US Securities and Exchange Commission, over the bank’s alleged fraud selling a particular mortgage backed security.

In a statement to the FT on the latest news, the bank said: “This type of language sounds awful and is very disappointing, but it does not reflect the reality of what happened. There was no short squeeze.”