Yes, it's not perfect either. It won't stop the NSA or even China's government. But it would stop me, and probably you, from pulling this trick :)

Using SSL(TLS) everywhere would go a long way toward security. It's much preferable over plaintext.

I really loathe arguments like "it's not perfectly secure, so let's use something even less secure". Making it harder means a larger investment for the attacker, especially as they have to do the certificate trick for each individual site instead of some simple interception blanket.

So what you are trying to convey, there is no advantage to using SSL vs. plain connection? I wonder why then they shut down SSL in my home country during elections..

There's no advantage against a motivated, state-sized actor. Against other attackers there is still substantial advantage.

Let's say there is no advantage against (maybe) the U.S. government. I fail to see how any other state or entity would be able to manipulate certificate authority chain in general.

If you are a certificate authority, you can issue certificates for any domain. There is nothing in the technology preventing you from issuing a whitehouse.gov certificate merely because you are based in Iran, for example.

Who is going to sign it?

Who is going to sign what?

If you mean the certificates that the certificate authority issues, then the certificate authority signs them itself.

If you mean who signs the certificate authority's authority certificate, then either another certificate authority signs it, or the certificate authority signs it itself and pays the browser makers to include it as a root certificate in their browsers.

I'm not sure what you're trying to get at?

What is the chance of Iran becoming a root CA? Passing a WebTrust audit? It's not like you can become one just by showing up.

Etisalat (state-controlled telecoms company in UAE) is a certificate authority. They are not a root CA --- Verizon signed their CA certificate. They have used this capability to intercept SSL communications.

If a UAE state-controlled telecoms company can become a CA, why not an Iranian state-controlled telecoms company? Or Chinese?

You are. You are the certificate authority, and you're trusted. Anything you sign is, by definition, valid.

Except every browser I know will barf at self-signed cert.

Not when you are a certificate authority that is already trusted by the browsers.

Modern browsers today accept a large number of "self-signed" certificates. The key is that the signer paid the browser makers money for that privilege. SSL assumes that those companies are all trustworthy, but is any company trustworthy when the government shows up with guns and asks for the master password to your key signer?

If no, then SSL fails.

Let me summarize because you seem to be misunderstanding: a lot of untrustworthy parties are trusted by browsers. This makes SSL somewhat useful against having a coffee shop steal your Facebook password, but almost certainly useless against having a government steal your password.