The preferred explanation of many of my interlocutors, that this was somehow a result of Bush's deregulatory mania, won't do, and not just because there's not really all that much evidence of Bush's financial deregulatory mania.  Tax cuts and financial regulation, however tightly coupled they may be in your mind, are neither substitutes nor complements.

Madoff's activities were not the sort of gray-area thing that might be slipped in among a newly lax attitude towards SPEs and SIVs.  It's straight out old fashioned fraud, of the sort that no one, no matter how keen they are on deregulation, thought was okay.  The SEC did not give a pass to Madoff because Bush, or anyone else, had told them to go easier on Ponzi schemes.

Somehow, even though everyone agreed that this was the sort of thing the SEC should be aggressively rooting out, and the SEC has perfectly adequate resources to investigate high-profile fraud at a 20-person operation, the SEC dropped the ball so hard it's probably even now still falling through the Earth's mantle towards China.

The market failed as badly as the government.  The people he bilked weren't unsophisticated consumers of the sort that we assume need regulatory protection.  They were extremely rich people, many of them with backgrounds in finance.

The market failed.  The government failed.  Leaving us with a big WTF?  We cannot fix this either by new rules--the SEC hardly needs new rules to make it clearer that you shouldn't fake financial statements while paying current investors out of the funds invested by new ones.  Nor by better reliance on private institutions--it's hard to argue that super rich people with considerable financial savvy were somehow blinded by some badly designed government intervention.  Everyone just screwed up.

We can send Madoff to jail, and I presume we will (and I shall want to know a very good reason why if we don't).  But that's not very satisfying, is it?

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