I wasn’t aware of the back story behind the creation of Freddy Kruger until I watched Adam Rockoff’s “Going to Pieces: The Rise and Fall of the Slasher Film.” In which Wes Craven tells an eerily fascinating story, retold here from the Wikipedia:
Wes Craven states that the film was inspired by several newspaper articles printed in the LA times on a group of Cambodian refugees and their children, who, after fleeing to America from Pol Pot’s Khmer Rouge regime, were suffering horrific nightmares, after which they refused to sleep. Acting on medical advice, their parents encouraged them to do so. However, each of the children died in their sleep soon after, following the second dream. After Craven read the articles covering these events, he began writing the film. Other sources also attribute the inspiration for the movie to be a 1968 student film project made by students of Craven’s at Clarkson University. The student film parodied contemporary horror movies, and was filmed along Elm Street in Potsdam, NY.
By Craven’s account, he had been bullied at school by a child named Fred Krueger, and named his villain accordingly. (He had done the same in his earlier film The Last House on the Left, where the rapist’s name was shortened to ‘Krug’). He based Krueger’s appearance on another childhood experience in which he had been scared by a homeless man with a very distinctive red-and-green sweater; the same colored sweater he chose for his villain. In addition, it has been stated that Craven had read that those were the two hardest colors to visually process together, which is another reason as to why he chose the respective colored sweater.
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