Great summer investors are having. Greece is in default. Italy and Spain are slouching toward insolvency. And now Stockton, California may become the largest U.S. city to declare bankruptcy. If only politicians paid as much attention as the markets.

As we went to press last night, Stockton's city council was poised to approve a budget plan for a possible bankruptcy filing, which could come as soon as Wednesday. According to city manager Bob Deis, bankruptcy is the only way to preserve a minimal level of services and public...