Appearing at the Leveson inquiry into press ethics and standards, Desmond said that the Press Complaints Commission had "vilified" Peter Hill, former editor of the Daily Express, and publisher Express Newspapers over its treatment of the story.
The paper and Desmond's Daily Star had in certain articles suggested that the McCanns were responsible for the death of the 3-year-old, who vanished in Portugal in 2007.
Desmond, the first newspaper proprietor to give evidence to the committee, said the Express had been made a "scapegoat" over what other newspapers were also doing.
He described the PCC as a "useless organisation" and jokingly suggested that it should be replaced by an "RCD committee", a reference to his own initials.
The Express settled libel claims over 38 defamatory articles published over a four-month period, including some of the most "egregious" articles about the couple, many of which blamed them for their daughter's disappearance.
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In March 2008, Desmond's Northern & Shell paid out £550,000 over 100 articles in the Express and Daily Star, and also ran a front-page apology in all its newspapers.
A statement at the time acknowledged that there was "no evidence whatsoever" to support the suggestion that "the couple caused the death of their missing daughter Madeleine and then covered it up".
Desmond admitted that his papers had done wrong and apologised again to the McCanns, but he argued that there were around 65 to 70 "good" articles published in the Express about the disappearance of Madeleine.
He also attempted to highlight that the McCanns had waited four months before taking legal action against the Express over the stories.
The media mogul suggested that the couple were therefore "quite happy" that the story was kept on the front page, but Robert Jay QC described that as "grotesque".
Desmond tried to justify the Express's stories about the McCanns, along with articles about Princess Diana, by saying: "If you go into a bar or coffee shop or whatever, you will get a view on Diana, you will get a view. Again, I apologise to the McCanns, but there are views on the McCanns, and there still are."
Desmond, who bought Channel 5 in July 2010 for £103.5m, said that the inquiry was "probably the worst thing to ever happen to newspapers in my lifetime".
He said that at a time of economic downturn in the UK it is hard enough to get people to buy newspapers, but the scandals have made it even harder.
"If they think that newspapers are dishonest lowlives, then they are not going to buy newspapers," he said. "In these past few months, sales of newspapers have been bad."
He also hit out at journalists and newspapers that have engaged in phone hacking, which currently is only known to have occurred at the now defunct News of the World, published by Rupert Murdoch's News International.
"You know, hacking is illegal. Why are these people still walking the streets?" he said. "These companies committed criminal acts and they should be prosecuted."
But Desmond was resistant to any form of regulation for the press, saying: "What I think is that free speech is important, and what are we doing in this country? Kill everything with legislation."
Today, the Daily Mail publisher Associated Newspapers has asked for a judicial review of Lord Justice Leveson's decision to permit witnesses to give evidence anonymously to the inquiry.
The move was intended to enable people to contribute without the fear of reprisal, but Associated Newspapers feels that it "fails to give effect to the principle of open justice".
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