Updated

President Bush on Monday expressed optimism that the economy can absorb a deepening financial crisis that has led to the bankruptcy of Lehman Brothers and the takeover of Merrill Lynch.

"In the short run, adjustments in the financial markets can be painful for the people concerned about their investments and for the employees of the affected firms," he said on the White House lawn alongside Ghana President, John Kufuor, whom Bush is hosting.

"In the long run, I'm confident that our capital markets are flexible and resilient and can deal with these adjustments."

Bush said his administration is focused on maintaining the health of the financial system as a whole.

"We're working to reduce the disruptions and minimize the impact of these financial market developments on the broader economy," he said.

Bush did not take questions after speaking.

In a briefing with reporters later in the day, Treasury Secretary Henry Paulson said a housing correction is at the root of the economy's problems.

"I believe that we've taken very important steps with respect to Fannie Mae and Freddie Mac and they're amongst the most important actions we can take to work through this turmoil," he said, referring to the government's seizure of the troubled mortgage giants earlier this month.

Paulson said major changes to the financial regulatory structure will be needed.

"We have an archaic financial regulatory structure that came in place a long time ago after the depression and really needs to be rebuilt," he said, adding that there needs to be a balance between regulation and market discipline. "You can't rely on one to solve the problem."

But Paulson noted that major changes will take time.

"Right now, we're working with the tools we have," he said, citing the Federal Reserve, the U.S. Treasury Department, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation.

"We're going to do what's necessary to protect this system," he said.

Bush also praised the Treasury Department, Federal Reserve and major financial institutions for helping to "promote stability" in the markets after the meltdowns.

Wall Street emerged from the weekend in crisis mode and with a completely reshaped financial sector. After 158 years in business, Lehman Brothers filed for Chapter 11 bankruptcy as it became the latest victim of the credit crisis. At $639 billion, Lehman's is the largest bankruptcy filing in U.S. history — easily surpassing the collapses of Enron and WorldCom combined.

Seeking to avoid Lehman's fate, iconic brokerage house Merrill Lynch agreed to sell itself to Bank of America for $29 per share in an all-stock transaction that shocked Wall Street. The deal, which is subject to shareholder and regulatory approval, presently values Merrill at $50 billion.

Meanwhile, American International Group hopes to raise an additional $40 billion to avoid a potentially-fatal credit ratings downgrade. AIG, the world's largest insurer, saw its shares lose nearly half their value last week as shareholders became increasingly fearful over the company's heavy exposure to the real estate market.