In Eddie's newly-opened and swanky PANAMA CLUB, featuring Jean Sherman and her Baby Bandits, he attempts to bring peace to the rival gangs by calling them all together in his back office. He has taken over Nick Brown's territory and rules over him as the new boss. A double-crossing George, tired of being ignored, jealous of his power, and weary of being treated as Eddie's "office boy" or "stooge" (along with gangster-pal Pete), is ready to end his association. In his plot to murder his boss, George's first step is to send Danny Green into a trap at Brown's place:

George: You must have been reading about Napoleon.
Eddie: What's bothering you?
George: First, you used to ask me about things, then you begun to tell me, now you ignore me. My feelings is getting hurt.
Eddie: Oh, my poor, delicate little rosebud. Ain't that a shame! Well, just as long as your bankroll ain't hurt, you got nothin' to squawk about. When Brown comes, you can call me. I'll be out in the club.
George: Now Pete, how do you like being a stooge?
Pete: Well, chief, I don't care.
George: Well, I do. I think maybe I'll have to do something about it.

Shortly after, one of Brown's vehicles dumps Danny's body at the front entrance to the club. A note on his body reads: "LET ME ALONE AND MAYBE I'LL LET YOU ALONE." In a sensitive moment, Eddie bends down over his friend's corpse: "Well Danny, I told you this wasn't your racket." As George expected, Eddie is determined to vengefully retaliate against Brown. [Note: This is a continuation of a series of deadly retributions, resulting in the deaths of Sgt. Pete Jones, Danny Green, Nick Brown, Georgy Hally, and ultimately Eddie's.]

With a phone call, George tips off the racketeer at his Italian restaurant that Eddie is on his way, after he vows to his pal Pete that Eddie is a target: "He'll be home early, feet first." He boasts that Brown can do his dirty work for him and murder his 'good pal':

I always say, when you got a job to do, get somebody else to do it.

In the blazing shoot-out scene at Brown's spaghetti & ravioli restaurant (with a flashing EATS sign), a frightened, innocent dining couple are caught in the ambush cross-fire between Brown's men and Eddie's gang. Behind upturned red-and-white checkered tables, two of Brown's hoods are killed, and Brown is shot in the back through the kitchen door by Eddie.

George is informed of the killings by a special news report about "gang violence" in a radio broadcast heard in his luxury apartment:

Gang violence flared up again in New York tonight when three men died in a spaghetti restaurant on the East Side. All were the victims of a gang battle which transpired when one invading mob was trapped in the restaurant by another faction. Among those who met their deaths are Nick Brown, powerful East Side gang leader, also Rocco, Brown's lieutenant, and Manny Eckert.

Eddie knows that he was set up and confronts George in his apartment. He breaks their partnership and vows to kill him if he eventually proves that he was betrayed: "That's right, George, you didn't get me...The only thing that's savin' your neck is I can't prove you dealt me a second. But if I ever find out, I got one in here with your name on it. Remember that."

Upon his return to the club, Panama explains to a deeply-affected Eddie, with graceful understanding, that Jean has quit the club and left with Lloyd - her true love:

Panama: Eddie, I'm gonna tell you something you won't like. Jean's quit the club, gave her notice.
Eddie: Quit, what for?
Panama: Do I have to draw you a diagram?
Eddie: Now look, you're tryin' to say somethin'. Get it off your chest and say it.
Panama: Jean's in love.
Eddie: Well, now you're bein' full of news. Sure she is, with me.
Panama: Eddie, this is gonna be kinda hard to take, and I don't want ya to get mad. Jean was never in love with you. She went hook, line, and sinker for that Lloyd guy the minute she saw him. And she's been seeing him every time your back was turned. I tried to give you the steer, but I guess I didn't get it over. Everybody knew it but you. Now look, Eddie, as far as Jean is concerned, you've been...
Eddie: Shudd-up.
Panama: Okay.

Outside the club, Eddie sees Jean with Lloyd and punches his romantic competitor in the mouth. But with Jean standing loyally at Lloyd's side, Panama's words ring true to Eddie and he apologizes: "I'm sorry. Sorry." Back inside the club, Eddie shares a drink with Panama at the bar - his first in the film: "One for you and one for me. Who can tell? I might like it."

(in voice-over) 1929. As the dizzy decade nears its end, the country is stock-market crazy. The great and the humble, the rich man and the working man, the housewife and the shopgirl, all take their daily flyer in the market. And no one seems to lose. Then like a bombshell comes that never-to-be-forgotten Black Tuesday, October 29th, confusion spreads through the canyons of New York City's financial district and men stare wild-eyed at the spectacle of complete ruin. More than sixteen and a half million shares change hands in a single day of frenzied selling. The paper fortunes built up over the past few years crumble into nothing before this disaster which is to touch every man, woman, and child in America.

With the crash, even Eddie's heavy investments in the stock market are jeopardized, and he begs George to lend him $200,000: "I'll sell ya forty percent of my cab company for two hundred thousand." Eddie is compelled to accept his slimy ex-partner's counter-offer to usurp his operation: "Two hundred and fifty grand for the whole company." As a condescending part of the deal, George leaves Eddie with one cab from his entire fleet: "I ain't gonna take all your cabs away...I'm gonna leave ya one, just one, cause you're gonna need it, pal."

(in voice-over) First to feel the effects of the economic disaster which sweeps the country are the nightclubs, the speakeasies and the bootleggers who serve them. With the falling off of profits in the illegal liquor industry, the mobsters have difficulty in paying protection, and the number of raids, arrests, and convictions double and quadruple. Then, in the depth of the economic despair that has gripped the country, Franklin Delano Roosevelt is elected President, partially on the basis of his promise to end Prohibition. In New York City, thousands of jubilant citizens march in a great beer parade, and shortly, 3.2 beer becomes legal. Finally comes the national referendum on repeal. Tired of years of violence, corruption, and loss of personal liberty, Americans go to the polls and overwhelmingly rout the dry forces. After thirteen years, Prohibition is dead, leaving in its wake a criminal element used to wealth and power but unable for the most part to cope with a new determination by an aroused public that law and order should once more reign.

After being financially broken by the repeal of Prohibition, suffering arrests and jailings, sleeping in 15 cent a night flophouses, and driving his cab, Eddie's down-and-out descent is rapid. One day during the Christmas season, he happens to have Jean as a cab passenger - she hires him to take her (with an armful of packages) from a downtown department store to her suburban mansion in the wealthy town of Forest Hills. Tightlipped about his own life, he learns that she has married Lloyd - a crusading, reform-minded lawyer within the district attorney's office. They also have a four-year old boy, who is playing cowboys and Indians in the house when they arrive and greets Eddie by pointing his toy gun at him ("stick 'em up, mister"). Vanquished by their domesticity and by the downturn of gangsterism, he tells both Lloyd (who has just come home) and Jean that he has "run into a streak of bad luck," but hopes to be back "up there on top again. I just got to figure a new angle." His second wartime buddy warns him that the rackets are no longer a viable way to succeed in life. Eddie reminds his friend, now sworn to battle the mob, that the prosperous racketeer George will kill him if he ever dutifully pursues a case against him:

Lloyd: Eddie, the days of the rackets are over.
Eddie: Don't you kid yourself about that. They'll always be guys tryin' to get up there quick - and I'm one of 'em. Oh, uh, I know you take your job very seriously and I want to give you some good advice. I see by the papers that the district attorney's office is building up a case against our old friend George.
Lloyd: It's already built up.
Eddie: Hm-mmm, you remember what George said about what would happen if you talked?
Lloyd: I remember.
Eddie: So does he.

On New Year's Eve, after Lloyd has left for work, George's goons threaten Jean in her home about the case against their gang boss: "...your boyfriend should bury any stuff the DA's office got on him...if your boyfriend don't bury the stuff, your boyfriend will get buried instead." Panicked that her young son may be harmed or her husband may be assassinated, Jean immediately searches for Eddie, asking door porters and cabbies about where to find him. She learns that he's taken to drinking to ease his pain and despair. According to his cabby friends, he is usually hopelessly drunk - "oiled to the gills," "on that bottle," and living "in the saloons." She is told that he may be found at a third-rate saloon where Panama works ("that dive where that off-key canary sings") called Flanagan's joint on Third Avenue.

In the drab dive ("a dog and pony joint") where Eddie hangs out with his faithful nightclub friend Panama, the off-key chanteuse sings In a Shanty in Old Shanty Town. Eddie is penniless and in a drunken stupor (and still feeling pangs of unrequited love). He drowns his sorrows after his unsettling reunion with Jean and remembers: "She sure had a swell kid" - and mentions that Jean "gets prettier all the time."

Panama: I've heard the same thing day after day for the past week. And I'm sick of watching you try to put out that torch you carry for her with a lot of cheap hooch. Who does the kid look like?
Eddie: Like her.
Panama: And they got a nice house.
Eddie: Yeah, it's a nice house if you like that kind of a house, but for me, uh, I'll take a hotel anytime. You know that.
Panama: Me too. Ain't it funny how our tastes have always run the same? Ever since the first time we met. I can just picture you living in the suburbs, working in a garden, raising flowers and kids. Wouldn't that be a laugh.
Eddie: Yeah, wouldn't I look cute?

After a full day's search, Jean finds them in the saloon and implores Eddie to help her. She tells him that two of George's men threatened her husband: "Eddie, you've got to help me!" She begs him to talk to George and save her husband's life because Lloyd cannot remain silent in the case ("it's his duty"). But Eddie is bitterly reluctant to help the man who stole away his girlfriend, and ultimately refuses to help. She sadly leaves him:

Eddie: Yeah sure, it's his duty. It's George's duty to stop him. I'd do the same thing in George's place.
Jean: Eddie, please, for my sake...
Eddie: The same old story, the same old story. Any time she wants anything, she comes to me. I suppose that's all I ever meant to you anyway...Maybe a patsy once but never twice.
Panama: Well, I don't see how it's gonna do any harm to talk to George.
Eddie: Talk? There's only one language George understands. And do you think I'm gonna walk into an ambush just because that big, dumb, good-lookin' husband of hers doesn't know enough to keep his trap shut? You're crazy. No dice, Jean, no dice.

After Jean leaves in despair, Eddie relents and changes his mind with additional urgings and reasoning from Panama:

Panama: Look Eddie, you've got to do something for them. She's got something to look forward to.
Eddie: So have I.
Panama: What?
Eddie: I'll be up there again.
Panama: Eddie, you're kidding yourself. The race is over. We're both finished out of the money.
Eddie: Maybe for you, but not for me.
Panama: It's over for all of us: you, me, and George. Eddie, something new is happening, something you don't understand.

As they leave the saloon (where Panama has just quit), Eddie reminisces about his idealized love, as the piano player's tune (My Melancholy Baby) reminds him of Jean. Accompanied by Panama in his cab, Eddie drives to George's apartment building. She waits outside as he enters and is ushered in to see George ("Sure, take him up, give the boss a laugh"). George's henchmen laugh at the decrepit, ruined man: "The rags of his pants are beatin' him to death." In George's fancy upstairs bedroom, Eddie redeems himself by having a showdown with his vile and despicable ex-partner:

Eddie: I came up here to talk to you about Lloyd.
George: There ain't nothin' to talk about.
Eddie: I think there is.
George: Get him out of here, Lefty....
Eddie: Now wait a minute, George, you know that if you get rid of Lloyd, there'll always be somebody to take his place, you know that.
George: I'll worry about that when it happens.
Eddie: But they got a kid.
George: Oh. Still carrying a torch for that dame, huh?
Eddie: I suppose I am.
George: Then what are ya beefin' about? I'm doin' ya a favor by knockin' 'em off. I want him to keep his mouth shut.
Eddie: But he can't. Look George, there's a new kind of setup you don't understand. Guys don't go around tearing things apart like we used to. People try to build things up and that's what Lloyd's tryin' to do. In this new setup, well, you and me just don't belong, that's all.
George: Maybe you don't. I do all right, anytime, anyplace.

During their run-in, George resists Eddie's petitions, and then orders his aide Lefty (Max Wagner) to take Eddie for a car-ride to oblivion, causing Eddie to reply suspiciously: "You're really gonna take good care of me, huh?" George sneers ferociously:

You said you didn't belong in the setup, so I'm gettin' ya out of it fast. I'm sorry, Eddie, but this is the way it adds up. You're still in love with that girl and you'd do anything in the world to help her. You got more on me than any guy in this town and I'll lay ya odds that the minute you get out of here, you're goin' straight to the cops and spill everything you know. Well, I'm just gonna beat ya to the finish. Goodbye, Eddie, and uh, Happy New Year.

Eddie punches Lefty, seizes his gun, and corners a sniveling, cowardly George against the wall, and then shoots him to death with three point-blank shots: "That's one rap you won't beat." Using Lefty as a shield, Eddie fights his way down the stairs past George's mob in the downstairs living room, shooting one man and tossing another over the second-floor banister. But as he flees the rival gangsters into the snowy street, he is shot in the back and mortally wounded.

In this fatalistic story of rise and fall, Eddie is bound to die a self-sacrificial, bloody death in the memorable finale - and death scene on New Year's Eve. [Note: The scene approximates the fate of Larry Fay, who was killed on the eve of 1931 in his NY nightclub by a disgruntled employee. Texas Guinan died two years later following an intestinal operation.] He finds sanctuary outside the nearby COMMUNITY CHURCH, where he stumbles, climbs, wobbles, and then tumbles down the flight of snow-covered steps. Weeping Panama Smith runs up to him and cradles his head in her arms as he expires on the steps of the church - the image evokes Michelangelo's Pieta. She answers a curious cop's inquiries about the deceased man's identity ("Who is this guy?") and laconically provides his epitaph and eulogy in the film's final poignant line:

Panama: This is Eddie Bartlett.
Cop: Well, how are you hooked up with him?
Panama: I could never figure it out.
Cop: What was his business?
Panama: He used to be a big shot.