A Senator discourses on Timon's unending bounty, unable to believe he keeps being so generous without running out of cash. Timon seems to make money reproduce itself, and his goods appear to multiply as if under some magical force. He can't believe that Timon's financial situation can hold. Timon in fact owes him money, so he call for Caphis, and sends him to Timon's house to demand his debt be paid. He instructs Caphis not to take no for an answer, and to insist on getting the payment, for the Senator has immediate need of gold.
Flavius enters and marvels at his master's spending. Timon takes no account of his expenses, he says, and no one was ever so careless in the project of being so kind. And Timon will refuse to hear anything about his expenses until he comes to misfortune. Caphis, Varro's servant and Isidore's servant enter. They encounter each other and find they are all there for the same purpose, to ask Timon for the money he owes their masters. Timon enters with Alcibiades, and the three servants make their case to Timon. Timon asks them to come back the next day, but they reply that they have been put off in a similar manner on repeated occasions. Timon asks Flavius why he is beset with people asking him for money, so Flavius asks the servants to leave them alone briefly while he explains the situation to Timon, and Flavius and Timon go off together.
The servants are left alone when they notice the approach of Apemantus and a Fool, and look forward to some fun. The three servants riddle Apemantus and the Fool with absurd questions. The Fool finds out that the servants work for usurers, or moneylenders, and announces that he works for a prostitute. He tells a riddle about how people come to borrow money from usurers, arriving sadly and departing happy, but people who visit his employer have the opposite emotions. The servants agree that the Fool is not completely a fool, but is capable of saying wise things.
Flavius and Timon return, and Flavius dismisses the servants temporarily. Timon asks Flavius why he never told him about his expenses, but Flavius says that Timon refused to listen whenever Flavius tried to alert him. Timon orders his land to be sold, but Flavius says it has all already been mortgaged. Flavius says that everyone loved Timon and his generosity, but now that the means to buy that praise and fondness of his friends are gone, perhaps his friends will be too. Timon is shocked that Flavius would suggest he could have no more friends. He calls for three servants, intending to prove to Flavius that he still has friends in Athens. He sends one servant to each of three of his friends, ordering them to ask for a loan of money.
After Timon sends off the servants, Flavius says that he had already tried this avenue, using Timon's signet ring to authorize an earlier request for a loan, but these friends were unwilling to help. Timon doesn't believe it, but Flavius assures him that all three friends answered in the same manner–that they're sorry, it's a misfortune, but they're busy men, and refused a loan. Timon replies that these men have a history of ingratitude, but not his friend Ventidius, whom Timon just had released from prison, and whose father recently died, newly leaving him great wealth. Timon asks Flavius to go to Ventidius and ask for a loan. Timon commands him to never imagine that Timon's fortunes could sink, but Flavius remarks that this is the curse of generosity; being generous, one thinks everyone else is too.
Timon's downfall comes at last, and creditors flock to his house. Timon has spent not only his own money, but he has borrowed money from his friends, probably to pay for gifts that he gave to them later. Now his friends want their money back–and Timon wants to borrow from some friends to pay back other friends. But at this point all his land has been mortgaged and can't be sold to pay back his loans, which is probably just as well, because his endless generosity has gotten him into a terrible vicious circle, or lending and spending pattern. If only he had listened to Flavius when he had tried to explain what was happening to his expenses!
Timon enjoyed having more money than all his friends, and wanted to be kind to them by giving gifts. But were his friends really his friends, or merely hanging around because he was richer than they and bestowing him with praise because he gave them things? Their responses to Timon's request for loans in the next act show that they aren't willing to help him out when he is in a bad spot, which is a strong case for them not being Timon's friends. And they are far less generous than Timon ever was, since he was always glad to loan money to help get a friend out of jail, etc.
Yet his friends and acquaintances loaned Timon money before the action of the play, and their calling their debts due causes this crisis. Perhaps before they hung around Timon's house because they couldn't believe the extent of his generosity, and they wanted to be around to witness its success or failure. And perhaps they then lent him money because they actually wanted to help bring about his downfall. Whatever the speculation, the facts remain that his "friends" would lend money to Timon when he seemed to be rich and likely to give them gifts, as well as pay back the loan, but when he is in trouble, none will help him. His friends behave more like an impersonal bank than as people who have previously benefited from Timon's generosity and might owe him some kindness.
This scene contains an exchange between the servants from the men who Timon borrowed money from, who seem to be sent by Timon's friends but also say they are in the employ of usurers. This detail may be mistakenly unclear as the result of an absence of revision, since this play was not performed in Shakespeare's time. The exchange seems fairly extraneous to the action, but is merely a change to get a Fool onstage, to make bawdy, fast-paced jokes with the servants. This Fool, who doesn't appear again in the play, probably references all the other fools in Shakespeare's plays, who were always distinguished by their ability to be wiser than wise men, and far less foolish than many of the main characters. In this case, Timon may have been the biggest fool, for his inattention to his purse and his belief that his generosity would be one day repaid.