Obama: Financial crisis a major threat to economy

CHICAGO (Reuters) - U.S. Democratic presidential candidate Barack Obama said on Monday the crisis sweeping Lehman Brothers and other Wall Street firms posed a major threat to the U.S. economy and underscored the need to modernize the financial system.

"The situation with Lehman Brothers and other financial institutions is the latest in a wave of crises that are generating enormous uncertainty about the future of our financial markets," Obama said in a statement.

"This turmoil is a major threat to our economy and its ability to create good-paying jobs and help working Americans pay their bills, save for their future, and make their mortgage payments," he added.

Obama, an Illinois senator running nearly dead even with Republican John McCain in the November 4 White House race, weighed in on the Wall Street turmoil as U.S. investment bank Lehman filed for bankruptcy protection and as concerns grew about the fate of other financial firms.

Rival Merrill Lynch agreed to be taken over by Bank of America. Insurer American International Group Inc asked the Federal Reserve for a lifeline, according to news reports.

Lehman's bankruptcy filing came after weekend talks brokered by U.S. officials failed to produce a sought-after solution that would involve a buyout of the troubled firm by other companies.

Obama and McCain both said they did not want a taxpayer-funded bailout of Lehman.

Obama has long called for an overhaul of Wall Street regulations, saying the subprime housing crisis and other problems stemmed in part from lack of transparency and accountability in the financial system.

"The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren't minding the store," Obama said. "For years, I have consistently called for modernizing the rules of the road to suit a 21st century market -- rules that would protect American investors and consumers."

(Reporting by Caren Bohan, editing by Peter Cooney)