Another potential twist on events...

Faraday tells Jack and Kate about his plan because he KNOWS the bomb is the incident.

What we know as canon: How does Faraday initially lose his mental integrity? Traveling through time and taking notes on his "trips". Then he comes to the Island and all is well again b/c the Island heals him. Right?

Some speculation from me: While he is in Ann Arbor, he reads his journal and learns about how the future must play out. He may even see the "alternate future" if the bomb explosion/incident isn't done. Maybe he intentionally goes back to the Island to explode the bomb - confirming Miles' strong assertion that the bomb IS the incident - but doesn't phrase it to anyone that way. He may not see his own death happen (he seems genuinely surprised by his own death), but he might see the necessity of exploding the bomb.

Is this plausible, or are there holes in this theory?

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