Ever since the aptly named fraudster Bernard Madoff reminded us of the power of hiding lies in plain sight, a trickle of other fund managers have begun to own up to similar pyramid schemes: crawling out of their Florida beach homes to admit they, too, fabricated their dizzying investment returns.

Using new money to create fictitious returns for existing investors - also known as a Ponzi scheme - is one of the oldest tricks in the book. But as the scale of the carnage in the wider financial system becomes apparent, it is time to wonder whether we have all been suckered in to a form of pyramid fraud.

The apparent financial wealth of the world increased in a seemingly endless upward spiral. Globalisation brought billions of new players into the game. And those on the inside were able to extract vast rewards before the music stopped. Just 12 top bankers, for instance, paid themselves £1bn on the basis that their firms were hugely profitable. The fact these same institutions have subsequently admitted to losses and accepted emergency bail-outs totalling more than £300bn has somehow become our problem, not theirs.

Nevertheless, the transmission mechanism from the fantasy world of international finance to the real world of home repossessions and unemployment should no longer come as a surprise. Even the sober-suited International Monetary Fund conjured up images of the Great Depression on Thursday by predicting the British economy would contract at its fastest rate since the 1930s.

All this week, the Guardian and the Observer have been charting this "Road to Ruin" in a series of investigations designed to show just how badly broken the financial system is. Mocked by one commentator as an overly moralistic metaphor, the series title is intended not as a hair-shirted prediction but as a description of the track we are on. Unless something is done soon, the International Labour Organisation's prediction of 50 million global job losses will look like an underestimate.

The current direction is not in question; the bigger challenge is finding our way back on to a path to prosperity.

The first lesson is not to look back. It is undeniable that excessive lending is what led us into this mess. Greedy bankers encouraged greedy consumers to borrow more than we should have done in a collective rush to enjoy the fruits of tomorrow's labour today. But encouraging more lending is not automatically the wrong response. What governments around the world are doing today is trying to manage the pace of transition to a less debt-dependent economy.

Like a junkie coming off drugs, corporate Britain needs to have its withdrawal process handled carefully. Refuse to refinance existing debt, as many banks are doing today, and all manner of otherwise healthy firms are forced under, with devastating consequences for unemployment and the wider economy.

This explains the paradox apparently dividing Labour and the Tories. David Cameron is right in his description of the problem, but wrong to accuse Gordon Brown of recklessly trying to reinflate the bubble. The wreckage left by the financial pyramid scheme is so complete that that simply would not be possible. The priority now is to limit its impact on the rest of the economy.

We've been here before, of course. A major cause of our latest debt explosion was former US Federal Reserve chief Alan Greenspan's attempt to prevent the bursting of the last bubble running its natural course. By keeping interest rates low, one economic cycle was suppressed - only to swing back more violently. If history is repeating itself, Cameron is right to be cautious.

Only this time it feels like something important has snapped: there is no going back. Once this phase of weaning companies off debt is complete, we will have to build an entirely different economy. Without artificial stimulants, companies and economies will be locked into lower rates of economic growth for generations to come.

Yet if this is combined with a reassessment of the ways we measure growth, it might not be so bad. Much of what we thought was growth has turned out to be illusory. Not just because profits turned out to be losses, but because the financial engineering on which much wealth was based had lost touch with economic reality. The notional value of financial derivatives peaked at $863 trillion - 16 times the world economy's size.

It is not even clear whether we will ever be able to honour the debt created during this latest, and most extreme, bubble. Writing much of it off may be the only solution - an admission implicit in the growing talk about establishing "bad banks" to ring-fence toxic assets.

Once stripped of its excessive dependence on finance, the free market still has much to offer. We can concentrate on building the sustainable industries of the future in which Britain has an enviable lead: biotechnology, creative industries, professional services like architecture and law, environmental technology and high-end manufacturing.

A free market will always encourage financial speculation, but it will be generations before anyone will buy this particular brand of horse manure again.

• Dan Roberts is the Guardian's head of business



dan.roberts@theguardian.com