I still don't know what 'vanity courses' are, so I Googled.
It seems that they are not courses taken to appease the vanity of the student, but to add to the offer of the university, so it is their vanity that is the issue. Courses that will only ever attract 2 or 3 students add to the lists of degrees on offer and make the university seem more wide ranging.
If the degrees are basically made up of modules that already exist on other courses, there won't be much by way of additional costs - just a bit of extra admin - so why not offer them? I'm very much thinking aloud here, but if, say, only a couple of people wanted to study a particular country in depth, why couldn't they take modules on the language, the literature, the history, the politics, the costume, the geography, geology etc all from different courses? So long as they were put together so that there was clear progression from one level to the next and there were enough credits at each level, why not?
The trouble is that all of this becomes more of a chore as universities have become businesses, and departments have their own budgets, so are often forced into competition with one another, and this makes cross-Faculty collaboration less likely.