The Dutchman was even allowed to speak to other clubs - but only on the understanding that a deal was dependent on Liverpool signing another striker.
Hodgson explained: "When there were offers for him we were prepared for him to go down and speak to those clubs, but we made it perfectly clear that other things would have to slot into place for us to be able to allow him to go.
"You've got to remember that for two years here he hasn't had much of a look-in.
"He was brought into the club with a lot of pomp and ceremony after winning the European U21 Championships and was being chased by clubs all over Europe at the time.
"Unfortunately he hasn't fulfilled that potential or had chance to."
Hodgson has been delighted with Babel's application in training over the last few weeks - and has challenged the 23-year-old to now make a go of things in L4.
He said: "I've got to say that I'm more than happy to work with Ryan Babel and it's up to him to convince me. No doubt if he hasn't done that by January he'll have to accept that maybe we'll be in that transfer market for a centre-forward once again, but at least he's got this period of time.
"He's working very hard and is very determined to take this chance he's got."
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