Obama called the fall of both Lehman Brothers and Merrill Lynch & Co “the most serious financial crisis since the Great Depression” of the 1930s.
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The Democrat is battling to overcome a significant boost in the polls for his opponent, who stunned Americans and solidified wavering support among his party's Christian conservative base with the choice of Alaska governor Sarah Palin as running mate.
After trailing Obama throughout the run-up to both party conventions, McCain has pulled even or edged slightly ahead in national polling – primarily riding the wave of Palin's initial popularity.
Economic woes high on agenda
Deepening turmoil in the US economy, the No.1 issue among voters despite the ongoing wars in Iraq and Afghanistan, could resonate in Obama's favour as he tries mightily to link McCain to President George W Bush, whose stewardship of the United States has left him with near-record disapproval ratings.
McCain and Obama responded to the news that the investment banking firm Lehman Brothers, burdened by $US60 billion ($A73.2 billion) in soured real-estate holdings, said it was filing for bankruptcy protection after attempts to rescue the 158-year-old institution failed.
Its businesses in Britain were already placed in administration, said the administrator, accounting firm PricewaterhouseCoopers.
Also, Bank of America Corp said it was buying Merrill Lynch & Co Inc in a $US50 billion ($A61 billion) all-stock transaction.
Over the weekend, advisers both to McCain and Obama said they did not favour a government bailout like that previously provided to mortgage giants Fannie Mae and Freddie Mac.
The government also helped engineer the recent sale of Bear Stearns Cos. to JP Morgan & Co.
McCain's philosophy attacked
In a statement issued shortly after 6am (2000 AEST) on the US east coast, Obama said he did not blame McCain, but “I do fault the economic philosophy he subscribes to. It's a philosophy we've had for the last eight years – one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.”
“It's a philosophy that says even commonsense regulations are unnecessary and unwise, and one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises.”
McCain said in a statement issued in advance of market openings that he agreed there should be no taxpayer-financed bailout of Lehman Brothers even as the investment banking giant faced the spectre of liquidation.
“It is essential for us to make sure that the US remains the pre-eminent financial market of the world. This will be a highest priority of my administration. In order to do this, major reform must be made in Washington and on Wall Street,” McCain said.
Financial turmoil has been overshadowing a campaign that has grown increasingly nasty.
Hitting back on the airwaves
Earlier, Obama's campaign announced it would begin airing a new television ad that challenges McCain's campaign tactics – questionable and, in some cases, untrue assertions about Obama, a first-term senator representing Illinois.
The commercial begins with videotape of McCain saying: “I will not take the low road to the highest office in this land,” after which an announcer asks “What's happened to John McCain?”
The 30-second ad then quotes snippets of negative media commentary about the Republican's campaign tactics and concludes: “After voting with Bush 90 per cent of the time proposing the same disastrous economic policies it seems 'deception' is all he has left.” The word “deception” is attributed to The Washington Post.
McCain, when challenged on the issue last week, said the contest would not have reached this point had Obama agreed to the four-term Arizona senator's call for weekly joint appearances at town hall meetings.
The Republican's campaign also issued a new ad on Monday, underscoring concern about the US economy on the same day that he said he still believes the US economy “fundamentals” are strong at a Florida campaign stop.
The ad said: “Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it. Tougher rules on Wall Street to protect your life savings. No special interest giveaways. Lower taxes to create new jobs. Offshore drilling to reduce gas prices.”
The Obama campaign ridiculed the commercial.
“Today of all days, John McCain's stubborn insistence that the 'fundamentals of the economy are strong' shows that he is disturbingly out of touch with what's going in the lives of ordinary Americans,” spokesman Bill Burton said.
“Even as his own ads try to convince him that the economy is in crisis, apparently his 26 years in Washington have left him incapable of understanding that the policies he supports have created an historic economic crisis.”
How to combat popular Palin?
Obama appears to be refocusing his campaign on the issue distinctions between him and McCain after having spent much of the previous week trying to figure out a campaign strategy to blunt the Republican surge in the polls fuelled by Palin's addition to the ticket.
Obama has been making campaign stops in the battleground state of Colorado, while running mate Sen. Joe Biden accused McCain of adopting what he termed the serve-the-rich policies of Bush and the divisive tactics of ex-Bush strategist Karl Rove.
“John McCain has decided to bet the house on the politics perfected by Karl Rove,” he said.
McCain's appearance in Jacksonville, Florida, was his first solo rally since announcing Palin as running mate more than two weeks ago. He was greeted by a crowd of several thousand who filled less than a quarter of the Jacksonville Veterans Memorial Arena.
Later in Orlando, he defended US workers as the “most innovative, the hardest working, the best skilled, most productive, most competitive in the world”. Palin attended a rally in Colorado before flying to Ohio for a fundraising event.