“The more difficult question is who/what sustained the derivatives market.”

I doesn’t look difficult to me but then I’ve been reading Frank Partnoy’s book F.I.A.S.C.O.

He makes a convincing case that it is rapacious derivatives salesmen on one side and on the other side two different types of customers:

1. Institutional investors looking to “misbehave” and make bets that are prohibited by the rules of their own institutions, in search of either speculative profits or unusually high yields.

2. Institutional investors looking to purchase a magical spell to ward off credit risk, in the form of hedges.

Put eager parties on both sides of a potential transaction and you have a deal. Repeat until judgment day.