Art arrives again at his father's house in Queens, wearing a new coat. Vladek is upset: he had wanted his son to arrive earlier so that he could climb onto the roof and fix the drain pipe. Art has bought a new tape recorder for $75, and Vladek tells him that he could have found it elsewhere for much less. He continues his story.
It is 1940, and twelve people are living in Anja's father's house: Anja, Vladek, and Richieu; Anja's parents and one set of grandparents; Anja's sister, Tosha, her husband, Wolfe, and their daughter, Bibbi; and Lolek and Lonia, two children of Uncle Herman, who is in the United States. Food is strictly rationed by the Germans. Anja's parents had been donors to a Jewish charity organization, through which they are able to secure additional food. They buy the rest on the black market. All Jewish-owned businesses, including Vladek's factory, have been taken over by German overseers, and the family is living off of their savings. The Germans are looking for any excuse to arrest a Jew. Vladek meets an old customer of his, Mr. Ilzecki. He is still in business, making uniforms for soldiers. He tells Vladek to see him if he gets any cloth and hands him a note that will get him past the guards at his shop. Vladek visits shops that owed him money before the war and arranges to acquire some cloth, which he hides under his clothes and takes to Mr. Ilzecki in exchange for money.
Soon after, Vladek nearly escapes a German raid, in which they close off a street and take anyone without work papers. Anja's father bribes a friend of his who owns a tin shop to arrange for a priority work card for Vladek, so that he will be relatively safe during Nazi roundups. But things continue to get worse for the family. One day, Vladek is walking to see Mr. Ilzecki when he passes by a violent mob of German soldiers beating Jews to the ground with clubs and boarding them onto trains. He sees Mr. Ilzecki, who rushes him into his house, where they wait for hours for the trains to depart. The situation is so bad that Mr. Ilzecki is sending his son to hide with a Polish family until things get better. He suggests that Vladek do the same, but Anja refuses. Mr. Ilzecki's son will survive the war; Richieu will not.
In 1942, all Jews are forced to move into one quarter of town, and all twelve members of Vladek's family are assigned only two and a half small rooms. Vladek continues to conduct black market business until a friend of Anja's father is executed for selling goods without coupons and is left to hang for days as a warning to others. Vladek had often done business with the man, and he is terrified to go outside for a few days.
Art asks his father what Anja was doing during these times, and he responds that she was mostly doing housework, but that she recorded her whole story of the Holocaust in diaries after the war. Art tells his father that he wants to have those for his book.
Vladek begins dealing in gold and jewelry, which is easier to hide than clothing but still dangerous, and also does some business selling food. Business is still dangerous, though. On one occasion, Vladek is delivering a sack full of illegal sugar when he is stopped by a German patrol. Rather than run, he lies and tells them that he owns a grocery store and that he is carrying the sugar there, legally. He makes his delivery as planned, with the guards watching.
