Speaking from his holiday location of Martha's Vineyard this morning, President Obama announced his nomination of "Helicopter" Ben Bernanke to a second term as chairman of the Fed. Under normal circumstances, this is a great honor; in a crisis, a second term may feel more like being sentenced to hard labor. Nevertheless, Bernanke is game -- but is he the right choice?

Ben faces old risks and new ones
Ben Bernanke is an expert on the Great Depression, and his knowledge has been critical in guiding his actions during the current crisis. The unprecedented scope and vigor of the Fed's response prevented the U.S. from slipping into depression; however, it has also created unprecedented risks. Timing the Fed's exit strategy and walking the tightrope between deflation and inflation in the coming years will be extremely tricky.

Bernanke's actions haven't been without some controversy -- there are legitimate questions concerning whether he and then-Treasury Secretary Hank Paulson were too aggressive in prodding Bank of America (NYSE:BAC) to complete its takeover of Merrill Lynch, for example. The decision to allow Lehman to fail was also questionable -- particularly after having steered Bear Stearns into the arms of JPMorgan Chase (NYSE:JPM).

The Fed was also instrumental in the rescues of Fannie Mae (NYSE:FNM) and AIG (NYSE:AIG). Meanwhile, its purview grew as firms including American Express (NYSE:AXP), Morgan Stanley (NYSE:MS), and Goldman Sachs (NYSE:GS) converted to bank holding companies.

Ben and the bubbles
I think Bernanke's re-appointment is probably the right decision -- he appears fully cognizant of the risks the Fed now faces, and there is arguably no one better qualified to manage them. During his second term as Fed chairman, I'd like to see him disavow Greenspan's doctrine that the central bank can't identify or resist the formation of asset bubbles. All bubbles are fuelled by credit -- the Fed has the means to act when an asset market becomes too frothy. Establishing such guidelines might seal his legacy as the man who fought one crisis and prevented future ones.

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Alex Dumortier, CFA, has no beneficial interest in any of the companies mentioned in this article. American Express is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.