One can grant that formalism once served a purpose

as a stopgap against the encroachment of crass bourgeois taste and the demand for morally improving art. Where formalism failed is where all modern antimodern ideologies fail, in the inability to oppose banality in any but modern terms. Since banality is the product of the desacralization of the world, real opposition to it requires an affirmation of the sacred. But moderns are incapable of such an affirmation even when (like Max Weber) they acknowledge the lamentable consequences of the desacralization of modern life. This left modernists no choice but to base their opposition to banality on aesthetic criteria. 

Banality, however, has democratic appeal while aesthetic criteria come off as elitist. This meant that formalism, understood as an aesthetic rejection of the banal, was tenable only as long as there was a self-consciously aristocratic or, at least, a pseudo-aristocratic audience for art. However, at some point around the mid-twentieth century the fickle, fashion-conscious art audience decided to go slumming. Banality packaged as irony, the hot new commodity of the postmodern era, became fashionable. At that point, formalism became a pejorative, and the aestheticized banal debuted as the birth of the cool.