It's a fine mess in the eurozone today and in global equity markets following a stupefying decision on the part of eurozone officials to provide a EUR 10 bln bailout for Cyprus that involves applying a levy on bank deposits to help pay for the bailout.
 
Cyprus depositors would receive an equity stake in the banks in return, yet that is almost a meaningless carrot for depositors who placed their full faith and credit in the idea that their money is safe deposited in banks.
 
The initial plan called for a 6.75% tax on deposits up to EUR 100,000 and a tax of 9.90% on deposits above EUR 100,000. 
 
There are reports today that Cypriot officials are considering an alternate proposal that involves a system that is more onerous for high-balance depositors and less penal for lower-balance depositors.  Reportedly, there would be a tiered system with a 3% tax rate for deposits up to EUR 100,000, a 10% rate for deposits between EUR 100,000 and EUR 500,000, and a 15% rate above EUR 500,000.
 
The Cypriot parliament has delayed a vote on the plan until Tuesday.
 
As to be expected, there is a great deal of anger among depositors in Cyprus, and a great deal of dismay in general in financial markets about the terms of the bailout deal.
 
There is heightened concern that this bailout plan will force a run on banks, particularly in troubled peripheral countries, as other depositors worry about the potential of being hit with a similar tax on deposits in the future.
 
The structure of the bailout deal has opened a whole new can of worms, inviting talk of a possible Cyprus exit from the eurozone and reinvigorating concerns about the eurozone debt crisis.
 
That is the bigger concern here since Cyprus itself is very small in terms of its economic impact on the eurozone.  Taxing bank deposits to pay for a bailout, though, has large implications given the domino effect it can have on investor confidence levels.
 
The shock value of the proposed bailout plan can be seen in global equity markets.  Asian indices fell between 1.0% and 2.0%, although Japan was an outlier with a decline of 2.7%.  Major bourses in Europe are all down between 1.0% and 2.0%.
 
The S&P futures are down about 15 points, setting the stage for a decidedly lower open for the US market as well.
 
The Cyprus news comes at an interesting time for the market, which was on the brink of a record closing high last week.  If nothing else, it is the type of news that will rein in some speculation and encourage some profit taking after what has been a remarkable run for the market so far this year.
 
There is a modicum of hope that a better bailout plan for Cyprus will emerge since the current one is too hard to believe as being the real deal given its regressive nature.
 
That might help explain why the Treasury market isn't going crazy with safe-haven buying this morning.  The 10-year note has a tidy gain certainly, up 15 ticks at 2.02%, but we are a bit surprised it isn't up even more given this mess of a bailout plan.
 
Conveniently, the FOMC meeting starts tomorrow and will conclude with a policy announcement at 2:00 p.m. ET on Wednesday.  The Cyprus bailout plan should add to what will likely be a lively discussion.  At the same time, it is a development that should lead participants to think the Fed is certainly going to stay on its accommodative policy course.
 
For the time being, it looks like the record closing high for the S&P 500 will have to wait.
 
--Patrick J. O'Hare, Briefing.com