This chapter is quite philosophical and hard to read, so I did a lot of extra readings on Baudrillard’s idea. (also why this post is late)
Fundamentally, Baudrillard is illustrating the point that any second-order simulation is essentially a third-order simulation. This links to The Precession of Simulacra chapter where he points out four phases of a simulacrum. He takes Disneyland and the Watergate as examples. For Disneyland, he said that on the surface, it is a fantasy land built outside the adults’ world and thus make people believe that everything outside Disneyland is the “reality”.

Everything is illusional. Disneyland is merely a simulacrum made to make people believe this contrast that inside is fantasy and outside is reality.

The same for Watergate. Baudrillard believes that Watergate is not a scandal. Saying it is a scandal means that there is a moral opposite side of it. However, what is actually there is
The primal sense of capital: its instantaneous cruelty, its incomprehensible ferocity, its fundamental immorality—this is what is scandalous.
Jean Baudrillard
This is the fact that people were trying to conceal.
Even the revealing of the “scandal” is proof of a larger lie. Capital is built upon social morality. It only works if there is a simulacrum of a morality based society. So that capitalists can be experts at this game while fooling everyone who believes in this simulacra. And, whoever regenerates the morality furthers the order of capital. The act of “Deep Throat” and the two journalists, who represent public morality (although their actual goal is ambiguous), in fact, advances this social simulation.