Leonard is a former insurance investigator. Leonard actually killed his wife with an insulin overdose, was judged incompentent, sentenced to a mental factility, and invented the story Sammy Jankis (and James G) as a fantasy to escape his guilt/grief. Leonard was an escaped mental patient being used by lowlifes to accomplish their plans (be it revenge or money).
However, if this is true then why doesn't Leonard remember his wife had diabetes? Yet as Leonard reminds us, "Memory's unreliable ... Memory's not perfect. It's not even that good. Ask the police; eyewitness testimony is unreliable ... Memory can change the shape of a room or the color of a car. It's an interpretation, not a record. Memories can be changed or distorted, and they're irrelevant if you have the facts."
Andy Klien's Salon Explanation
Memento on IMDB
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Last Updated May 27th, 2002.