They certainly believed they were rubbish. However, a belief that the market will swing in a certain direction is not the same as knowing a product sold is rubbish.
In fact, the CDO's were not rubbish. The CDO's are supposed to pay off in a certain way based on market outcomes, which they did. Goldman simply believed the market would go one way, while buyers thought the market would go another way.
The story conflates timelines, as does the discussion. It makes it hard to take any of it seriously.
For the vast majority of the time that those products were sold, the mechanism for profit was to keep a piece of the highest risk (and highest return, in theory) piece for the bank.
This is not a mechanism that works, at all, if one believes the products are rubbish.
That said, you make a good point that it's entirely possible to sell a product that you don't like for yourself, without doing it in bad faith. If you came to me and said "i want to put all my money into commercial REITs", I'd find a way to make the transaction happen. But I wouldn't put my money in with yours.
In fact, the CDO's were not rubbish. The CDO's are supposed to pay off in a certain way based on market outcomes, which they did. Goldman simply believed the market would go one way, while buyers thought the market would go another way.