Bologna the lunch meat was brought over from Italy. It is basically a cheap, processed version of Mortadella, and was first called "Bologna Ham" because Mortadella comes from Bologna.
People in the US know enough Romance language to associate morta with the word dead (even if that is wrong) so "mortadella" as a lunch meat is a non-starter. Calling it Bologna didnt work because Americans see that word and pronounce it bo LOG na. Baloney doesnt work because people associate that word with phoney.
So we are stuck with this hybrid foolishess that doesnt really help anyone. I am sure this happens in every kids' life: "Johnny go get the Baloney out of the refrigerator so we can have lunch". "Mom I cant find Baloney, but we got this Bo log na stuff, is that good?"