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4 loans a year wouldn't do diddly. There are $500 billion in bum loans in the system. And the real figure may be higher, because some are masked by loaning companies enough to make the miniscule interest payments later required, thus making them appear solvant. (E.g. Borrower A owes 1000. Interest rates are 1%. Lend then 100 more, they pay back 11 per year as interest, and are solvant for 9 years. Even though the value of their assets is actually 300 and their income non-existent).

You are right that it won't be fun, but going slow on loan liquidation will not help any of it. Banks will have to be closed, their desositers paid off with public money, their stockholders wiped out, collateral of bad loans seized, the assets sold to the highest bidder. That will spread economic pain well beyond the banks - but it will also get assets out of the hands of the walking dead and create actual prices for assets, with transactions possible. Right now there is simply no trading e.g. in land or most real estate, to maintain "just pretend" values in mortgage appraisals, etc. The government and central bank should help cover the short term contractionary effect of this by printing money and cutting taxes. But clean up the mess they now must, and fast. The luxury option of a long and gradual liquidation is no longer available. They blew 10 years already...

It's not 4 loans per year. It's 4 loans PER BANK per year. Further, it is the 4 WORST loans, per bank, per year. While it will take a couple of years to work these loans off the books, it will liquidate the most poor performing first.

Also, there will be the herding effect. Firms that have not serviced their debt and are marginally bad, will see that they need to shape up and will do so, either through improved sales or sales of those assests that are not producing. This will reduce their debt load but give folks time to correct the situation.

Lastly, loans that are marginal now, may become profitable after the economy slump is over. By that, it might be possible to improve the position of marginal companies because the dead wood which has been dragging the economy will be gone. The worst of the dead wood first.