We are witnessing the biggest fire sale of financial companies since the Depression. Some buyers will make fortunes. Some may get badly burnt.

Bear Stearns, a large chunk of Lehman Brothers and now HBOS have all been snapped up at rock-bottom prices. Washington Mutual, the US mortgage lender, is up for sale and the break-up of American International Group, the insurance giant taken over by the US Government on Tuesday night, should throw up some bargains.

Morgan Stanley is talking to potential buyers and there is a growing likelihood that even the mighty Goldman Sachs will have to sell itself amid continued pressure on its share price.

If that did happen, there is little doubt that buyers would get real bargains. However gloomy you are about the prospects for investment banking, Goldman and Morgan Stanley remain great businesses (though, admittedly, in the past, the benefits have largely accrued to their staff). They are being undermined by a crazy, vicious spiral involving the share price, the rating agencies, the cost of insuring against their default, and their ability to fund themselves.

Both may insist, as they did when announcing their pretty solid earnings on Tuesday, that they do not need the support of a commercial bank with access to large deposits. Since most capital markets businesses cannot be funded through a bank in the US, it is largely beside the point, they say. But the market is not listening.

If one or both banks do feel forced to sell, it is hard to see them getting a good price, not least because there are relatively few potential buyers.

Most of the Western banks in a position to buy a large investment bank have already bought one (Bank of America and JPMorgan Chase) or have said they have no interest, publicly (Wells Fargo) or privately (HSBC).

Morgan Stanley has held talks about a possible merger with Wachovia, the fourth biggest US bank that has been badly damaged by its exposure to Californian mortgages and is now worth less than Morgan Stanley.

Although there are Asian banks with money and ambition, Lehman Brothers found that getting them to agree a deal in this extremely nervous climate is very difficult. Some insiders believe the most likely outcome for Morgan Stanley is a bailout by the US Federal Reserve.

Bob Diamond, head of Barclays Capital, may be right that its purchase of Lehman’s US business is the opportunity of a lifetime.

The numbers certainly look attractive and the fact that Barclays’ shares rose amid yesterday’s turmoil suggests that he has sold the deal well to investors.

But some of Barclays’ shareholders are understandably nervous about Mr Diamond’s ambition to take the bank into the Wall Street “bulge bracket” overnight. Some would be nervous about that at any time; now, it really gives them the willies. After HBOS, the short-sellers are looking for the next bank to target. Barclays has hardly strengthened its defences.

Some Lloyds TSB shareholders are equally nervous. The HBOS deal may look good on paper, but it increases the bank’s exposure to UK property lending hugely just at the wrong time.

You can get great bargains at fire sales. But sometimes they turn out to be damaged goods. And you can’t take them back.

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