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NEW YORK (CNNMoney.com) -- As the U.S. government has injected hundreds of billions of dollars into the banking system, lending rates have finally stabilized around low levels last seen in 2004.

But despite low borrowing costs, investors aren't yet breaking down the door for loans.

Lending keeps the financial world afloat. Banks make money from the interest on loans, companies use loans to finance payroll and operating expenses and consumers depend on loans to buy cars, education and homes. But when Lehman Brothers collapsed in mid-September, lending seized up and borrowing rates soared.

With the lending market in crisis, the government has stepped in with countless programs aimed at restoring liquidity to the credit market, headed by the flagship initiative, the $700 billion Troubled Asset Relief Program. And Libor rates have fallen to four-year lows just two weeks ago from all-time highs in mid-October.

But the government continues to go back to its arsenal to come up with new programs to restore the market to normalcy.

Citigroup (C, Fortune 500) was on the brink over the weekend, so the government backstopped $300 billion of its toxic mortgage assets and gave it another $20 billion loan. Private banks such as Goldman Sachs (GS, Fortune 500) have begun auctioning off billions of dollars of U.S.-backed corporate debt under the FDIC's Temporary Liquidity Guarantee program.

And the Treasury and Federal Reserve unveiled yet another new program Tuesday, pouring an additional $800 billion into the economy with the aim of increasing the availability of consumer loans and mortgage loans.

Still, droves of toxic assets remain on many banks' balance sheets. And the economy has likely fallen into a recession, which was underscored by a government report on U.S. gross domestic product Tuesday that showed an even steeper economic decline than previously reported for last quarter.

Experts say the only way lending will resume is with a conservative and patient approach.

"Banks are among the first institutions to feel the impact of economic headwinds, and they are being overwhelmed by a sea of negative statistics right now," said Matt McCormick, analyst at Bahl & Gaynor Investment Counsel. "A back-to-basics approach - focusing on customers with higher credit scores - is the only way they're going to get through this."

"And time and patience," he added. "No one wants to hear that, but this thing needs to work itself out naturally."

Lending rates: Lending rates were up very slightly Tuesday. The 3-month Libor rate rose to 2.20% from 2.17%, according to Dow Jones. The overnight Libor rose to 0.93% from 0.8%, according to Bloomberg.

Libor, the London Interbank Offered Rate, is a daily average of interbank lending rates and a key barometer of liquidity in the credit market. More than $350 trillion in assets are tied to Libor.

But even as lending rates edged higher, two gauges of banks' confidence in the credit market were a mixed bag.

The Libor-OIS spread rose slightly to 1.78 percentage points from 1.68 points on Monday. The spread measures the difference between actual borrowing costs and the expected targeted borrowing rate from the Fed. It is used as a gauge to determine how much cash is available for lending between banks. The bigger the spread, the less cash is available for lending.

Alan Greenspan, the former Fed chief, has said that we will know the credit markets have returned to normal when the Libor-OIS spread returns to just a hair above the anticipated Fed funds rate. That will show that banks are confident about the market conditions and have resumed normal lending practices.

Another indicator, the TED spread, fell to 2.08 percentage points from 2.16 points. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The lower the spread, the more willing investors are to take risks.

Bonds: Low Treasury yields are another sign that the credit market remains volatile as the perceived safety net of government debt is still in high demand. Bonds were mostly higher and yields were mostly lower Tuesday as economic reports showed near record low consumer sentiment, deteriorating GDP and record home price declines.

The benchmark 10-year note rose 1-31/32 to 105-18/32, and its yield fell to 3.10% from 3.33% late Monday.

The 30-year bond rose 3-3/32 to 115-27/32, and its yield fell to 3.62% from 3.78%. Before last week, the yield on the 30-year bond had only once before fallen below 4% and that was at the height of the credit crisis in October.

The 2-year note fell 13/32 to 100 5/32, and it yielded 1.18%. The decline came after Treasury held an auction of 2-year government debt Monday, adding a record $36 billion to the supply.

The government auctioned off another $26 billion of 5-year notes Tuesday. The Treasury also auctioned off $32 billion worth of 28-day bills and $35 billion worth of 328-day bills on Tuesday.

Meanwhile, the yield on the 3-month bill rose to 0.12% from 0.01%. The 3-month yield is still near lows not seen since the height of the financial crisis, when it fell below 0%.

The yield on the 3-month Treasury bill is closely watched as an immediate reading on investor confidence, with a lower yield indicating less optimism.