With the credit crisis in full swing, the zeitgeist demands that i point out to you other "financial sophistaction" products which banks and brokers are selling to the public which have no use, and are essentially to generate commissions for them.
Bond insurance, and especially municipal bond insurance, is snake oil. Holding bonds is diversifiable risk for serious investors, and in smaller cases where insurance is needed because the investor can't diversify their risks away-they should be sold. But to sell insurance on all municipal bonds like what MBI and Ambak have been doing is useless.
A rational investor can hold many different municipal bonds and even if some default, she is ok-the risk is not the municipal bond market risk, and not any individual municipal bond defaulting.
Ajit Jain, who runs the newly founded Berkshire business to sell this snake oil called municipal bond insurance, even testified about the uselessness of his business. See here. I dont understand why they are still going ahead with this.
California seems to be realizing that this insurance is not needed; others should realize it too.