Economics question

I know members here come from various backgrounds, before I got into this I did engineering and project management in the nuclear industry. If there is anybody here with a background in economics, could I get an answer to a question that has been bugging me for a couple of years now?
With the current economic situation, banks and other lenders are hesitant to lend money, even to businesses and people that have a decent credit history. The governments response has been to keep pushing interest rates down. I would think that lowering interest rates would be a strategy to employ if you had a shortage of potential borrowers. In our current situation we have a shortage of willing lenders. I would think that lenders would be much more eager to lend money at a little higher rate. If 30 yr conventional mortgages were at say 7 or 7.5 percent the risk would look much more tolerable than at 4.5 percent. Would not slightly higher interest rates encourage lending and subsequently spur economic activity? As an investor I am much more likely to invest in a moderate risk a 7% return than I would be at the same risk for 4 percent.

Here’s a pretty detailed article from Bloomberg that explains some of the supply and demand issues they are having with the overall economy and in particular the Small Business Lending Fund. It seems that there are struggles on both sides. … -fund.html