Few would disagree that Bank of America's purchase of Countrywide will go down as one of the great corporate blunders in the history of finance. It has claimed the legacy of former CEO Ken Lewis, whose career floundered on the deal he so ardently championed, and it now threatens to similarly tank the career of CEO Brian Moynihan.

What is the bank's best option from here? The Deal Professor makes an intriguing argument as to whether Bank of America should seek bankruptcy court protection for its troubled mortgage unit. One might think that throwing the old company into bankruptcy court would be the best option--and in the mind of the professor, it still is the best route. But the picture is cloudy because of some post-deals on the part of the bank.

The AIG suit against Bank of America offered a goldmine of information regarding the corporate structure of the Bank of America and Countrywide. It suggests that Bank of America in fact moved to consolidate some of the Countrywide operations. If the old Countrywide were to seek court protection, it would be open to charges that it fraudulently transferred out a lot of assets, leaving the acquired company a shell left to wither. The AIG complaint essentially makes this case apparently. This once again highlights just how thorny the issues are for Bank of America.

The professor concludes: "The bottom line is that, unless Bank of America's lawyers really messed up the transfers, Bank of America is far from insolvency itself, having the option of cordoning off this liability to a large extent through a bankruptcy filing." No matter what, it seems like more litigation is coming, and that will be exceedingly expensive.

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