Ignatius wakes up in the hospital. His mother is horrified that he has been mixed up with criminality and decadence.
It turns out that Lana Lee was distributing pornographic pictures to high schools; Jones showed Mancuso where she kept her stash.
Frieda, Betty, and Liz were also arrested for attacking Ignatius.
Mrs. Reilly reveals that she had asked Mancuso to follow Ignatius because she thought he was involved in shady dealings.
The Consolation of Philosophy was found in the bar; therefore Ignatius knows he was lusting after Lana Lee, who had stolen his own book. He is mortified.
He blames all his troubles on Myrna, even though (as his mother points out) she's in New York.
Claude pays for Ignatius's hospital stay—again, much to Ignatius's horror.
On top of everything else, Mr. Clyde fires Ignatius for wearing his uniform off-duty and bringing bad publicity to Paradise Vendors.
The letter Ignatius wrote excoriating Dr. Talc has been made public and has damaged his reputation.
He had decided to bring Ignatius forward in person, figuring doing so would discredit the rumors, but then he sees Ignatius in the paper and figures that he's just too volatile and crazy to deal with.
Miss Annie, the Reilly's neighbor, sees the paper and all her worst fears are confirmed.
Mancuso is the only happy person; the arrest has made his career and now his sergeant loves him.
Santa is pleased for Mancuso.
Claude is horrified at the disgrace for Mrs. Reilly.
George is captured by the police.
Lana Lee is in prison with Frieda, Liz, and Betty, and they attack her to get the naked pictures of herself she has hidden in her bra.
Dorian is sorry he has lost the three girls as tenants since they protect the building, and he's also sad for Mrs. Reilly, whom he figures must be humiliated by the newspaper publicity.
Darlene got such great publicity from the newspaper article that she's got a chance to put her show on at a different club.
Jones tells his friend Mr. Watson that he's out of a job, but at least Officer Mancuso appreciated his help so the police aren't coming after him anymore.
And finally we settle with Mr. Levy, who discovered that Ignatius was not at the psychiatric hospital, and is trying to figure out what to do about his lawsuit.
With some bitterness he remembers his father, who never consulted him about the business and generally treated him not unlike his wife now treats him.
Mr. Levy sees Reilly in the paper, and figures he can go confront him about the letter now; he also realizes that his wife wants to see him ruined so that she can crow about how awful he is, even though it means she'll have no money.
The two of them go to the Reillys. The family isn't home, but Miss Annie is happy to tell them what a mess Mrs. Reilly and Ignatius are.
The Reillys come home, bickering away—Ignatius is mad that Mrs. Reilly is seeing Claude, while Mrs. Reilly is mad that Ignatius keeps money from her and treats her like dirt. So they disagree.
Mr. Levy asks Ignatius if he wrote the letter that caused the lawsuit, but Ignatius says he did not and blames Gonzalez.
Mrs. Reilly tells Levy that Ignatius did it. Mr. Levy thinks that Mrs. Reilly ill-treats her son; he thinks she's acting like Mrs. Levy.
Ignatius shows Mr. Levy his writing where he talks about how much he liked working at Levy Pants (but not the part where he boasts about inciting the workers to revolt).
Then he convinces Mr. Levy that the letter was all the doing of Miss Trixie, who hates Levy Pants for refusing to retire her.
Despite Mrs. Levy's skepticism, Mr. Levy goes to Miss Trixie's apartment and gets Miss Trixie to confess to writing the letter, even though she didn't do it. She is easily confused.
Since Miss Trixie was prevented from retiring at Mrs. Levy's insistence, it now appears that the letter and the lawsuit were all her fault.
Mr. Levy threatens to tell their daughters that their mother almost destroyed the family.
Having gotten the upper hand of his wife, Mr. Levy is now inspired; he decides to start making Bermuda shorts and change the name of the company to Levy Shorts.
He also decides that the foundation his wife started will give its first award to Jones for breaking the pornography ring. Giving it to a black person will make the workers feel more invested in the company, he says.
Mr. Levy figures out that it was really Reilly who wrote the letter—but having Miss Trixie confess has turned out better for everyone.