(CNN) -- The U.S. Treasury Department will begin selling bonds Wednesday to help the Federal Reserve, which has had to loan out an unprecedented amount of money to businesses because of the credit crisis.

CNN's Ali Velshi says the Fed needs access to large amounts of cash to keep Wall Street confident.

The Fed announced Tuesday it would authorize the Federal Reserve Bank of New York to lend up to $85 billion over two years to insurance giant American International Group. In return, the government will receive a 79.9 percent stake in the company, which has 74 million clients in 130 countries.

The first Treasury auction for the central bank will be for $40 million. The Treasury bills will mature in 35 days, allowing the Fed access to quick cash.

But what does this mean to American taxpayers and an ailing U.S. economy? CNN senior business correspondent Ali Velshi breaks it down.

Q: What does this mean in layman's terms?

A: The Federal Reserve keeps a lot of money in supply to help banks, and basically, when they help them, it means they loan them money. As this credit crisis intensified, the Fed invited more and more banks to come and borrow from it and would accept collateral that was not as high-quality as it would typically accept. The Fed was the lender of last resort for a bank; you paid a premium to borrow money from the Fed, and you had to give them your best collateral.

What's happening now is you still pay a premium, but you can go with lower collateral. The thinking behind that is the more banks feel free to go to the Fed to borrow money, the less likely they are to get money at higher interest from other sources and the less likely they are to fail as a result. In other words, if they feel that there is an ability to borrow money from the Fed -- if they absolutely have to to stay afloat -- that facility is there.

Well, the number of banks that have taken advantage of this has caused the reserve at the Federal Reserve to go from about $800 billion to, by some estimates, as low as $200 billion. And when they do things like the bailout of AIG, that's where that money comes from.  Watch experts discuss what the bailout means for consumers Â»

So you do the math, and there's some sense that the Fed could run out of money to finance these banks, to give loans. And just the idea that the Fed could run out of that money causes Wall Street to panic because it says, "If four more banks were to fail, the Fed wouldn't have money to bail them out, so we're in a bad situation."

So the thinking is: Let's increase the Federal Reserve's reserve, and that's what this auction is. It's the first in a series of auctions -- this one will be for $40 billion -- where the Treasury on behalf of the Federal Reserve issues bonds that they will sell at auction, the way they normally do, and they'll be for 35-day periods. So the Fed gives out those bonds, and in exchange, gets cash and the Fed sits on that cash and uses it for whatever it needs.

Q: Why would the government bail out a company like AIG but let Lehman Brothers file for Chapter 11 bankruptcy protection?

A: Speaking frankly, the world can do without another investment firm. If an investment bank fails, any remaining investment bank can hire more people and take their jobs. AIG is not an investment bank. As a principal insurer, it insures consumers, it insures businesses and it insures business ventures, so it's not just that your corner store needs insurance.

AIG insures things like rigs and Hollywood movies and those subprime mortgage-backed securities. The utter failure of business that would ensue from a failure of AIG would be catastrophic and would actually leave the government having to pick up a few things along the way.

The best analogy I've been able to come up with is to use an
Who is auctioning off this bond? When is this bond auction going to happen? Who said the Fed needs more money? When did the US Treasury hold its first bond auction? How much is the loan? Who said the Feds need more money? What would keep Wall Street confident? What does "AIG" stand for? How much was the loan that the government gave to AIG Who will hold its first bond auction?
U.S. Treasury Department Wednesday Ali Velshi Wednesday $85 billion Ali Velshi the Fed needs access to large amounts of cash American International Group. $85 billion U.S. Treasury Department
question: Who is auctioning off this bond?, answer: U.S. Treasury Department | question: When is this bond auction going to happen?, answer: Wednesday | question: Who said the Fed needs more money?, answer: Ali Velshi | question: When did the US Treasury hold its first bond auction?, answer: Wednesday | question: How much is the loan?, answer: $85 billion | question: Who said the Feds need more money?, answer: Ali Velshi | question: What would keep Wall Street confident?, answer: the Fed needs access to large amounts of cash | question: What does "AIG" stand for?, answer: American International Group. | question: How much was the loan that the government gave to AIG, answer: $85 billion | question: Who will hold its first bond auction?, answer: U.S. Treasury Department