Bank of America (NYSE:BAC) is one step closer to getting taxpayers out of its hair. Kind of.

Earlier this year, it struck a deal with the government to backstop losses on $118 billion of Merrill Lynch's worst assets. An insurance policy, of sorts. In return, it was to issue taxpayers $4 billion in preferred stock, plus a handful of warrants. Last March, JPMorgan Chase (NYSE:JPM) did the same thing when it bought Bear Stearns, and Citigroup (NYSE:C) got a similar deal on more than $300 billion of its own assets.

Then in July, Bank of America came out and said, Whoa, wait a minute. We never used the guarantee, and actually never signed the papers. So ... about that $4 billion fee? We've decided to opt out. 'K? Thanks!

Regulators fumed, claiming, rightly, that Bank of America owed a fee after it benefited greatly from an "implied guarantee" that was trumpeted as a safety net at a time when, without the confidence the safety net provided, things would have been a whole lot worse.

Now the bank has agreed to settle the matter, paying taxpayers $425 million. So while it's putting this issue behind it and pushing the government out of its way, it claims it never really received anything in the first place.

I don't know how to feel about this. The whole thing was seriously bungled to begin with. For one, why didn't the Treasury and the Federal Reserve get a signature before announcing a deal was struck? These are smart people who've been in high-level business for decades. They know darn well how the process works.

Go back and read the Federal Reserve's press release on the day the deal was announced. It makes no mention whatsoever that this was apparently a deal-less deal. In fact, the term sheet specifically says "The foregoing is accepted and agreed by and among the following as of January 15, 2009," and lists Bank of America as a party that "agreed" to the deal.

Second, why didn't Bank of America make it more clear to shareholders that the insurance policy propping it up through the panic was an illusion? (Well, I think the answer to that is fairly obvious.)

Plenty of investors put money into the bank based on the idea that Merrill's worst assets were backstopped by taxpayers. I'm sure some of them would have liked to know that, by Bank of America's own admission, that wasn't, you know ... true.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.