Updated: 4:29 p.m. ET

Who would have thought that the 160th most populous country in the world would have caused a near global panic.

That's the oddity of Cyprus, whose banking system was in disarray on Monday after the government agreed to tax the savings accounts of Cyprus' outsized banks in order to get a 10-billion euro bailout (roughly $12.9 billion) from the European Central Bank, the International Monetary Fund and the European Commission.

How much of a tax -- if any -- will be imposed is unclear because Cyprus' parliament refused to ratify the deal. And Cypriots were outraged.

Global markets were unnerved. Stocks in Asia and Europe tumbled. The Dow Jones industrials ($INDU) fell as many as 110 points early in the day. The blue-chip index was briefly positive in the afternoon before sliding 62 points to 14,452, its first two-day loss since Feb. 21-21.

And the Russians were spitting mad.

Yes, you read correctly. The Russians. Seems that Russian oligarchs have used banks on Cyprus to park their cash, ill-gotten or otherwise. As a result, the Cypriot banks have assets eight times larger than the island nation's gross domestic product of some $23.6 billion.

Russians keep about $19 billion in deposits in Cyprus, mainly through companies they set up there, The Associated Press said. Russian banks also had around $12 billion placed with Cypriot banks at the end of last year and have loaned about $40 billion to Cypriot companies of Russian origin.

In addition, The Associated Press said, some $49 billion was wired out of Russia illegally in 2012, much of it to Cyprus.  The interest in Cyprus is lax  banking laws that allow money to flow in and out without much examination and well beyond the reach of Russian officialdom.

Cyprus really is a small country. Its population is smaller than the Bronx in New York. Its economy, as Business Insider helpfully noted, is a little smaller than than that of Shreveport, La.,

Cyprus was having a debt crisis that, if left alone, could lead to a default on its sovereign' debt and the collapse of its two largest banks. For reasons that mystify, the original proposal was for the first 100,000 euros (about $129,500) of savings to be subject to an immediate 6.7% tax. Anything above 100,000 euros would be taxed at 9.9%.

But demanding bank depositors to share in the costs of financing a bailout is unprecedented. The tax is "a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future," Joachim Fels, chief international economist at Morgan Stanley in London, wrote in a client note.

The proposal basically crashed as everyone on the island in the eastern Mediterranean headed to their nearest ATM to get their cash out before the tax could be imposed. The Cypriot government was scrambling around Monday for a new idea.

That caused money managers around the world to worry that bank runs on Cyprus would leave to bank runs in Greece, Italy and Spain on Monday. The fears appear unfounded. There were no lines outside banks of customers wanting their money.

Ratification votes on the proposal were postponed on Sunday and again on Monday. Cyprus ordered its banks closed until Thursday.

The episode dismayed a great many people, including Russian President Vladimir Putin, whose official spokesman called the plan "unjust, unprofessional and dangerous."

The Economist magazine said the idea was bad for three reasons:

• Regardless of whether there were depositors lining up outside banks in Greece or Italy, it does the raise the risk the depositors are right to worry.
• Second, "There is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched," the magazine said.
• The deal "has no coherence in the larger context," the article said. European worries have calmed down. But while the ECB's price for help is to go into an austerity program, this plan suggests the ECB isn't as strong as people have thought.

Since everyone has gone back to the drawing board, this could prove to be a crisis with a short life as Marketwatch's Mark Hulbert opined on Monday.

But it also shines a light on something else. The stock market is jittery with the Dow sporting record levels and the Standard & Poor's 500 Index ($INX) flirting with the new highs. The S&P 500 ended Monday 13 points below its all-time closing high of 1,565.15.

In fact, the markets are a bit overvalued and may well be ready for the long-expected pullback of 5% to 7%.

Gold (-GC) jumped $12 to $1,604.60 an ounce. But crude oil (-CL) added 29 cents to $93.74 in New York. The U.S. dollar moved higher against the euro. The 10-year Treasury yield fell to $1.956% from 1.996% on Friday.

More on Top Stocks

• Analyst calls: Hewlett-Packard upgraded
• iPhone out of touch? Not exactly
• Jubak: Now's the time to seek out bank dividends