Everything you don’t understand about the historic bailout.

The basics:

What the hell is going on?

The U.S. government will provide AIG, a top-tier insurance company, an $85 billion credit line to help AIG avoid bankruptcy. In return, the government will effectively receive 79.9 percent of AIG’s stock. Treasury Secretary Henry Paulson will replace AIG’s management and bring in a new CEO, Edward Liddy. Liddy is a former head of Allstate Insurance, where he had a successful tenure while notably limiting the number of policies lent to clients in catastrophe-prone areas.

Why does it matter?

In three key ways. First, AIG’s failure is a sign that the subprime-mortgage crisis has spread past the finance industry. AIG’s bailout-or-bankruptcy status is evidence that the subprime fallout can retain its virulence outside the banking sector, which should cause knees to rattle in the companies that may be next to fall. Second, AIG’s near-death experience shows just how worried the government is that the entire global economy—not just the banking sector—is at risk of serious damage. Finally, the U.S. government has never taken over a private insurer before. It’s a form of nationalization that the country has never participated in.

What does AIG do, anyway?