updated 9/15/2008 3:34:34 PM ET 2008-09-15T19:34:34

Democrat Barack Obama laid into the economic policies of the Republican opposition on Monday and Republican rival John McCain called for a regulatory overhaul of the battered financial sector as Americans awoke to the disappearance of two Wall Street giants.

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Obama called the fall of both Lehman Brothers and Merrill Lynch & Co. "the most serious financial crisis since the Great Depression" of the 1930s.

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 Gov. 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.

Deepening turmoil in the U.S. economy, the No. 1 issue among voters despite the ongoing wars in Iraq and Afghanistan, could resonate in Obama's favor 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 Monday to the news overnight that the investment banking firm Lehman Brothers, burdened by $60 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 $50 billion all-stock transaction.

Bipartisan agreement: No bailout
Over the weekend, advisers both to McCain and Obama said they did not favor a government bailout like that previously provided to mortgage giants Fannie Mae and Freddie Mac. The government also help engineer the recent sale of Bear Stearns Cos. to J.P. Morgan & Co.

In a fiery campaign speech in Grand Junction, Colorado, 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."

The address to an outdoor rally closely mirrored a statement Obama had issued shortly after dawn on Monday as Americans were awaking to the fearsome news from Wall Street.

"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 specter of liquidation.

"It is essential for us to make sure that the U.S. 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 was overshadowing a campaign that has grown increasingly nasty.

A question of 'deception'
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 percent 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.

Video: Palin on 'tough times' 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 Monday, underscoring concern about the U.S. economy on the same day that he said he still believes the U.S. 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."

Out of touch?
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 in a statement. "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."

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.

Obama was making campaign stops in the battleground state of Colorado on Monday, 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.

Video: Bush says economy can withstand 'adjustments' 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.

Palin attended a rally in Colorado, her first outside her home state of Alaska without McCain at her side. She said Obama "wants to raise income taxes and raise payroll taxes and raise investment income taxes and raise business taxes and raise the death tax."

"But John McCain and I know that's not the way you grow the economy," she added.

In fact, independent groups such as the Tax Policy Center have concluded that four out of five U.S. households would receive tax cuts under Obama's proposals.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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