1) Officially a lot of the stuff is there for hedging/insurance.
2) It's quite hard to regulate this stuff out of existence, because the aforementioned really smart people will find holes in your regulation.
3) The financial industry is quite powerful and can hire a lot of lobbyists that talk about "improving efficiency" by reducing red tape surrounding their industry.
4) During the good times it looks like a lot of wealth is being created and no-one wants to commit political suicide by spoiling the party.
Comments
Four reasons off the top of my head:
1) Officially a lot of the stuff is there for hedging/insurance.
2) It's quite hard to regulate this stuff out of existence, because the aforementioned really smart people will find holes in your regulation.
3) The financial industry is quite powerful and can hire a lot of lobbyists that talk about "improving efficiency" by reducing red tape surrounding their industry.
4) During the good times it looks like a lot of wealth is being created and no-one wants to commit political suicide by spoiling the party.