I to found the whole story full of potential plot holes that were (to my surprise) completely filled in at the end (skyscraper guy falling, dad falling, etc.) But I was impressed how the writer filled in all the things you were scratching you're head about, exempt... the grandfather going after the grand daughter (John Farrow/Clive Owen's father going after John Farrow daughter). So I looked up the plot, read the forum, and did find this an OK answer:
My belief is that Clive Owen's character's trauma literally created a nightmare that manifested in reality. Hiding the story in the tree was his way of dealing with it, in essence banishing the nightmare. When the girl found the story the nightmare, which had become more than just a nightmare, was invoked by her. I don't think it was a literal ghost, but more along the lines of his own psychic projection.
That was reasonable, and works with the "ghost" going up in flames at the end when they work it out. Mostly.
The key to me was to put it on this shared genetic psychosis thing, a predisposition to believe in these things, which I went "yea, that's just as likely to be an explanation for a ghost as it is a psychosis, because there is no rational basis for either, it's just a theory." But there was the letter the girl found, that coupled with the same set of fears (delusional genetic psychosis) could, by a LEAP of imagination lead to them having the shared delusions. Sure. That all still works with the above explanation.
The problem for me came from the "deadly" part. Sectioned (committed to an institution) sure, maybe, but killed? Suddenly, the dilution had the power to KILL the little girl? There was no explanation for the grandfather having the power to kill the granddaughter. And the fact that it was all explained by a shared tendency to have delusions brought it back to "reality" and was ok, but then this "shared genetic fear" and "letter brought about same plot line for the dream they had, heightened by the fear" didn't come even CLOSE to the level of making the fear turn DEADLY. That's the part that was "over the top" and ruined it for me, going from good mystery drama to "over the top Nightmare on Elm Street" (you can die in your dreams) to me.
Did I miss a part where they justify how it almost killed the girl? Or am I to except that bad dreams, a shared letter that gives the same fear to someone new, and a genetic predisposition to being "scared" add up to "deadly?"
The only thing that would have explained that to me would be if John Farrow/Clive Owen shared his fathers tendencies also, and HE was the one who almost killed his daughter without knowing he did it?!? But the last scenes were him RESCUING her, but talking to her? Did I go to take a leak or something and miss where he was wrestling with himself mentally, and preventing himself from killing the girl?
Plus, what was the deal with the teddy bear? They made this HUGE deal of the 50 year old antique teddy bear given to her on her birthday, and it had nothing to do with anything.
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