An electro-optical feedback loop can make in-loop light (squashed light) wh
ich produces a photocurrent with noise below the standard quantum limit (su
ch as squeezed light). We investigate the effect of squashed light interact
ing 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 th
at one master equation can be formulated for all three types of light and t
hat this unified formalism can also be applied to the evolution of a two-le
vel atom. We show that squashed light does not mimic all aspects of squeeze
d light, and in particular, it does not produce the characteristic linear i
ntensity dependence of the population of the upper-most level of the cascad
e three-level atom. Nevertheless, it has nonclassical transient effects in
the de-excitation.