Basically banks borrow from other banks to lend money for mortgages.
Washington Mutual has declared bankruptcy as it can't afford the repayments on it's borrowings - presumably it's customers can't afford the repayments to put it into this position.
The US treasury is planning to pump in billions of US dollars to 'prop' up the system. But understandably they are arguing over it.
If the decision is not reached before Monday morning, I would imagine a lot of investors will be selling their shares in financial institutions for fear of losing all their money, thus triggering a large scale collapse of the markets....