AFGHANISTAN, AFTER McCHRYSTAL There was no pique, and some apparent regret, as President Barack Obama announced that he had fired his top commander in Afghanistan, Gen. Stanley McChrystal. The president cast his decision as one of trust and military order. He rightly said that respect for civilian control and a strict military code of conduct must apply 'equally to newly enlisted privates and to the general officer who commands them.' Obama also insisted that his Afghanistan policy will not change. What he didn't say is that the war is going badly. If there is any chance of beating back the Taliban and al-Qaida, he needs a commander he can trust. His choice of Gen. David Petraeus -- the only four star with a higher profile than McChrystal -- should provide some reassurance to allies and Americans. But their anxieties are not going away. The war was going badly before McChrystal and his aides made derisive remarks to Rolling Stone magazine about Vice President Joe Biden and others. We hope this sorry incident will persuade Obama to end his administration's destructive infighting. More than six months after he committed an additional 30,000 troops, the president's aides (and his vice president) are still battling over how deeply to invest in the war. Obama said on Wednesday that he welcomed debate among his top advisers, 'but I won't tolerate division.' We hope he is far tougher in private. He needs to think seriously about a wider house-cleaning. His ambassador in Kabul, Karl Eikenberry, a retired lieutenant general, has made clear his lack of enthusiasm for the counterinsurgency strategy and is barely on speaking terms with Afghanistan's president, Hamid Karzai -- a deeply flawed leader who isn't going anywhere. The president also should take a hard look at Richard Holbrooke, who is supposed to be overseeing the civilian and political aspects of Afghanistan's rebuilding. More advisers are in place, but plans to improve public services and build stronger government institutions -- essential for winning popular support -- have never had the same priority or coherence as war fighting. The often-overbearing Holbrooke has real trouble getting along with Karzai and Pakistani leaders. Those relationships have no chance of improving so long as there are constant reports that Holbrooke is on his way out. The president has a choice: replace his special envoy or give him a clear endorsement and more authority and hold him accountable for results. Defense Secretary Robert Gates and Petraeus urge patience, since all of the additional troops will not be in place until August. Obama has promised a full review of the war come December. But the deteriorating situation demands a serious assessment now of the military and civilian strategies. Four months after American troops drove fighters out of the center of Marjah -- McChrystal's first major offensive -- there is no functioning government, international aid programs lag and the Taliban are coming back. Americans need to hear what lessons were learned and how Petraeus plans to apply them in Kandahar, a far more important target. Obama and his advisers need to come up with a better plan for dealing with Karzai -- who spends much of his time undermining the Americans or scheming to cut his own deal with the Taliban. Until the insurgents are genuinely bloodied, they will keep insisting on a full restoration of their repressive power. Reports that some State Department officials are also advocating a swift deal with the Taliban are worrisome. Americans are weary of this 9-year-old war. Obama needs to do a better job of explaining why it is so central to American security. More important, he and his aides have to do a better job managing it. THE DERIVATIVES ENDGAME Financial reform enters a crucial phase Thursday as House and Senate negotiators begin public debate on the regulation of derivatives, the complex instruments at the heart of the financial crisis. This is arguably the most important issue for big banks because real reform will crimp their huge profits from derivatives deal-making. It also is arguably the most important one for the public. The largely unregulated, multitrillion-dollar market in derivatives fed the bubble, intensified the bust and led to the bailouts. Unreformed, it will do so again. The final bill must ensure that derivatives are traded on transparent exchanges and processed through third-party clearinghouses to guarantee payment in case of default. That would end the opacity that masks the size and risk of derivatives deals, like those that caused the bailout of the American International Group. But to be effective, the new rules must be broadly applied. Exceptions to the rules in the Senate bill are narrowly drawn. Painstakingly negotiated and uniquely customized contracts would not need to be publicly traded, nor would derivatives deals that commercial businesses use to hedge legitimate risks. Any attempt by negotiators to expand the exceptions would be moving in a dangerously wrong direction. Lawmakers also have to keep the definition of an 'exchange' narrow. A transparent exchange is a trading facility in which many participants make bids and offers and everyone can see what prices were offered and paid. Proposed language from the House for the final bill would allow telephone deals to qualify as a proper trade, which is seriously wrongheaded. In addition to trading through clearinghouses and exchanges, the bill must establish legal tools to stop or undo deals that have not been properly cleared or traded. Banks have been pushing hard to handcuff regulators, demanding that only egregious and intentional violations be deemed out of bounds. The new rules will be meaningless unless regulators can quickly and efficiently enforce them. Lawmakers also must resist banks that want federal financial backing for derivatives clearinghouses, like access to emergency loans from the Federal Reserve. That would be, in effect, license to take the same outsize risks that precipitated the crisis and the bailouts. Finally, lawmakers must find a way to separate banks' derivatives dealing from federally insured deposits. Ideally, that would involve spinning off derivatives businesses into separate entities. A lite version of reform would involve setting up a separate derivatives affiliate within the bank holding company. What is crucial is that derivatives operations are supported by adequate capital of their own, and that there are no loopholes allowing federally backed banks to keep dealing in derivatives. If done well, reform will create transparent and robustly regulated derivatives markets that can fail without taxpayers bearing the losses. Sadly, that is a big if. AS THE RENMINBI GOES ... The announcement by China's central bank that it would stop pegging its currency to the dollar could be a watershed moment for the global economy -- if China really allows the value of the currency to rise. China's cheap currency policy has not only built up enormous trade surpluses with the United States and Europe, it has become a drag on the economic recovery of other developing nations whose exports can't compete. The policy is skewing global economic management as other countries keep their exchange rates artificially low. It is building enormous financial imbalances by adding to China's huge pile of dollar reserves. With international resentment growing, China's announcement on Saturday was clearly timed to pre-empt criticism at this weekend's summit of the world's 20 leading economies in Canada. Doubts about Beijing's sincerity were immediately raised when the central bank issued a second statement insisting a substantial appreciation of the currency, the renminbi, is 'not in China's interest.' Its rate policy since then suggests that any rise permitted will be very gradual. The policy of deliberately undervaluing the renminbi has been central to China's economic success over the past two decades. But it is no longer tenable even for China's own economic health. A substantial increase in the currency's value would help combat inflation by keeping import prices low. It would boost the buying power of Chinese workers and help ease the country to a new phase of development based on sharing more of the spoils with its workers and allowing their consumption to power further growth. China knows how to do this. From 2005 and 2008, the central bank allowed the currency to appreciate gradually from 8.25 to about 6.83 to the dollar. That aided exporters everywhere and China's growth did not suffer. With the global economic crisis, Beijing has slammed on the brakes and the renminbi has been stuck at about 6.83. China is now well on the way to economic recovery. Other countries are not so fortunate. Unless China makes a firm commitment to let its currency rise, it will have a hard time managing inflationary pressures and international resentment. SERIAL APOLOGIES, NO CONTRITION House Republicans had their chance to do the right thing and remove Joe Barton as the ranking Republican on the Energy Committee. Instead, they applauded him. Barton, you will recall, apologized to BP -- saying it was a victim of a 'shakedown' -- after President Barack Obama pressed the company to ante up a $20 billion compensation fund for all the people who have lost their jobs and businesses because of the oil spill. After Barton tried apologizing again before his party's private caucus, John Boehner, the Republican leader, said 'the issue is closed.' Boehner showed his clear loyalties -- protecting party hacks and the oil industry -- when he decided that Barton should keep his central role in the Republican Party's energy policy. Boehner cited Barton's 'poor choice of words,' as if it were an oratorical gaffe and not a glimpse at deeper outrage that government dared to call Big Oil to account. The Texas lawmaker spoke a day after the Republican Study Committee caucus of House conservatives denounced Obama for applying 'Chicago-style shakedown politics' against poor, defenseless BP. Rep. Jo Bonner, R-Ala., whose Gulf Coast constituents are incensed, said it best last week when he called for Barton to lose his ranking position on the energy panel: 'I believe the damage of his comments are beyond repair.' After the party caucus ended with a forgiving round of applause, Barton's Twitter feed proclaimed: 'Joe Barton Was Right.' But wait, that message was soon deleted; it was a mistake, said the latest apology from Barton's office. 