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What would be the first step - bleed the system? What could be going wrong?
It sounds like you have air in the system. You can try bleeding it to see if it firms up but chances are that the air will return - maybe a cracked hose, seal, etc. That said, I would think you would be losing fluid somewhere as well. On the other hand, it could be an internal leak in the master cylinder - fluid leaks past a seal but remains in the closed system - although I haven't personally experienced this as of yet.
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