It now costs more to insure Californian municipal debt against default than it does bonds issued by the government of Kazakhstan, the central Asian country satirized in "Borat."

That is neither a joke nor hyperbole. Californian munis cost 2.6% of face value per year to insure, reports CMA DataVision in London, which tracks bond insurance data. Kazakh bonds: Just 1.8%. It is "now less expensive to insure Kazakh debt than that of Greece, California and various other entities," confirms CMA spokesman Simon Mott. (Crisis-stricken Greece, incidentally, costs about the same as California).

Borat, one. The Terminator, zero.

In light of the headlines, you can see why some investors might be worried. The state is trying to plug another $20 billion budget gap—barely half a year since the last crisis left Sacramento issuing IOUs. Its economy seems to be in freefall. California has lost more than 1 million jobs in two years. Real estate prices have collapsed about 40% from their peak, estimates Zillow.com. Mark Hanson, an independent real estate analyst in Menlo Park, Calif., believes about two-fifths of all California homeowners are underwater. No wonder some commentators are throwing around words like "bankrupt" and "failed state."

Are they right?