After Bernard Madoff confessed in December to looting some $50 billion from investors through a long-running, widespread Ponzi scheme, Rep. Paul Kanjorski, D-Pa., complained that this massive fraud “fell through the cracks of our regulatory system.”

Indeed it did, but let’s be blunt — there are now a lot more “cracks” than “system” in America’s financial regulatory apparatus.

It’s not like Bernie was running some intricate, obscure and novel type of investment finagling. It was a Ponzi scheme — one of the oldest and simplest hustles that exists. And Madoff’s version of it not only was the biggest in history, but also one of the most glaring, having prompted plenty of formal complaints to the Securities and Exchange Commission, which is supposed to be the public’s watchdog against such ugliness.

But the dog didn’t bark, much less bite, even though SEC enforcement officials have received numerous credible and specific allegations about Madoff’s shady doings. One of the most prominent complaints came in a 2005 letter from a well-known securities executive, Harry Markopolos, who titled his missive so boldly that even the most obtuse regulator couldn’t have mistaken the message: “The World’s Largest Hedge Fund Is a Fraud.”

Hello … Anyone home? No. Again and again, the SEC either conducted no investigation into the complaints or only a cursory one, even exonerating him in a 2007 case based on “facts” that were supplied by a helpful concerned citizen: Madoff himself!

The real story of the Madoff mess is not him, but the mess — the fact that under both Bill Clinton and George W. Bush there has been a deliberate, fantasy-based defanging of our financial watchdog. The fantasy is that in the laissez-fairyland of deregulation, bankers and brokers can be trusted to do what’s right.

This faith-based regulatory philosophy was enthusiastically embraced by a panelist at a 2004 session convened by the SEC to promote further deregulation of Wall Street firms: “You really have to start with the assumption that most of us in this industry really have their client’s interests, you know, coming first.”

That panelist was Bernard Madoff.

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