An electro-optical feedback loop can make in-loop light (squashed light) which produces a photocurrent with noise below the standard quantum limit (such as squeezed light). We investigate the effect of squashed light interacting with a three-level atom in the cascade configuration and compare it to the effects produced by squeezed light and classical noise. It turns out that one master equation can be formulated for all three types of light and that this unified formalism can also be applied to the evolution of a two-level atom. We show that squashed light does not mimic all aspects of squeezed light, and in particular, it does not produce the characteristic linear intensity dependence of the population of the upper-most level of the cascade three-level atom. Nevertheless, it has nonclassical transient effects in the de-excitation.