The U.S. territory of Puerto Rico announced they intend to file for bankruptcy, making the island commonwealth the largest U.S. municipality in history to file for protection from creditors.

Puerto Rico is asking a federal judge for permission to file for bankruptcy, which is being opposed by its numerous creditors, including several Wall Street banks.  The territory owes $70 billion – dwarfing the $18 billion owed by the city of Detroit before it declared bankruptcy.

CNNMoney:

Bankruptcy won't be an easy process. A judge still has to approve it. Many prominent Wall Street firms own Puerto Rico's bonds. They are angry about the bankruptcy filing because they fear now they won't get paid back all the money they are owed.

Puerto Rico's situation is ugly. The island has been in an economic recession for about a decade and the unemployment rate is 11.5%.

The island's financial crisis is so bad that Congress installed a Fiscal Oversight Board to call the shots last year. The board stopped trying to negotiate with creditors this week and filed for bankruptcy.

"Make no mistake: The board has chosen to turn Puerto Rico into the next Argentina," says Andrew Rosenberg, a lawyer at Paul, Weiss, Rifkind, Wharton and Garrison, who is advising some of Puerto Rico's bondholders.

Detroit's finances were taken over by a financial manager who negotiated several haircuts for city employee pensions and health care costs.  The city is slowly recovering, although it's still something of an economic basket case.

This is probably not an option for Puerto Rico.  Creditors are refusing to cooperate with the manager appointed by Congress, which led to the current filing.

Republicans from Trump on down are flatly refusing a bailout:

On the campaign trail, Donald Trump said he would not "bail out" Puerto Rico. He repeated that again in a recent tweet.

Mick Mulvaney, Trump's budget director, said Wednesday that the White House pushed hard to ensure no federal dollars would go toward paying the island's debts in the latest Congressional budget deal.

People are literally fleeing Puerto Rico to go and live in the mainland US, especially Florida. The island's population has declined by 350,000 in the past 10 years. Even worse, CNNMoney found that a doctor a day has left Puerto Rico, causing a severe shortage of medical help as the island was fighting the Zika crisis.

As businesses and people say goodbye to Puerto Rico, there's even less money to pay back creditors. The island's latest budget plan includes only $800 million a year to pay back creditors. That's a mere 20% of what the island had been paying creditors in the past.

Without a bailout, Puerto Rico's bondholders will be in a world of hurt.  Eventually, a bankruptcy judge will decide how much they will lose, which may have a ripple effect in the municipal bond market.  But there is no realistic way that Congress could bail out the island, given the massive debt and disappearing tax base.  Even with a bailout, there's no guarantee that the government would implement reforms to get the island back on its feet.

Congress is well advised to steer clear of this economic mess and let a judge sort it out.